Explanatory Notes - Counterparts to M4
OVERVIEW
AVAILABILITY
SOURCES
DEFINITIONS
VALUATION AND BREAKS
FURTHER INFORMATION
OVERVIEW
The Monetary and Financial Institutions’ (MFIs’) consolidated balance sheet counterparts to M4 are a re-arrangement of the MFIs’ consolidated balance sheet. There are two different presentations of the counterparts, which are explained below.
AVAILABILITY
Counterparts of M4: MFI balance sheet:
Quarterly figures for M4 components and the alternative counterparts are available from 1963 Q1. Calendar monthly figures are available from June 1982 but the earlier part of the series is of lower quality than from October 1986 onwards, after the introduction of end-calendar-month reporting by banks (see “Banking and monetary statistics: a change in reporting dates” inthe December 1986 Quarterly Bulletin (P519)). The full balance sheet counterparts are available both monthly and quarterly from 1990 Q2. Publication of provisional M4 and balance sheet counterparts data will occur on the 14th working day of the month following the end period in the Provisional Estimates of Broad Money (M4) and Credit (M4 Lending) release. Publication of final data and the alternative counterparts will usually occur on the 21st working day following the end of the period or subject to the published schedule of releases in tables A2.2.1, A2.2.1, A3.1 and A3.2 in Monetary and Financial Statistics (Bankstats) and on the Statistical Interactive Database.
M4 is derived from the consolidated balance sheet of UK monetary financial institutions (MFIs). These data are currently provided by:
- UK-resident banks; All UK-resident banks report data to the Bank of England on the form BT on a quarterly basis. Currently banks with UK private sector deposits or loans over £1,000mn or eligible liabilities over £400mn report data on a monthly basis. Prior to September 1997 balance sheet data were reported on the BS form. A further sector breakdown of business with UK residents is also provided on the form BE on a monthly basis, by UK-resident banks who report the form BT on a monthly basis. All data are reported in sterling, with foreign currency data converted to sterling at the middle spot sterling exchange rate at 4pm on the last working day of the month.
- UK-resident building societies; From January 2008 data from building societies are collected on the same basis as for UK-resident banks, on the forms BT and BE on a monthly basis (see the article on Transition of building society statistical reporting in the January 2008 edition of Monetary and Financial Statistics). Prior to this, data for building societies were collected by the Financial Services Authority. And these figures were based on a sample of societies, which were grossed up to achieve full coverage of the building society population in the published data.
- UK Central Bank; Data from the Bank of England Banking Department and Issue Department are collected on the same basis as for other UK-resident banks, on the forms BT and BE on a monthly basis. Prior to March 1998 the Banking Department of the Bank of England was included in the banks sector, whilst the Issue Department was included as part of central Government.
All data are subject to revision if and when new information becomes available. For more information on revisions practices see the Explanatory Note on revisions, available here.
DEFINITIONS
M4 comprises specific liabilities of MFIs held by the non-MFI private sector. See also M4 explanatory notes.
The counterparts to M4 are formed from the MFI consolidated balance sheet. For more details on the MFI consolidated balance sheet see also MFI consolidated balance sheet explanatory notes.
The balance sheet version of the counterparts can be reconciled to the alternative version of the counterparts (see below). The PSNCR and its non-MFI sources of financing (‘public sector contribution’) are replaced by MFIs' net sterling lending to the public sector. M4 lending is shown in both versions of the counterparts. The external and foreign currency counterparts are more disaggregated in the MFIs' balance sheet version and show the lending and deposits breakdown within non-residents’ sterling and foreign currency business and the private and public sectors' foreign currency business. Net non-deposit sterling liabilities are replaced by sterling net other assets. Foreign currency net other assets, previously part of external and foreign currency finance, are also shown separately.
The counterparts include:
M4 lending
This is sterling lending by MFIs to the M4 private sector. The M4 private sector consists of all UK residents other than the public sector and MFIs.
Acceptances, though still reported off balance sheet by individual reporters, are treated on balance sheet for the purposes of the aggregate financial accounts and monetary statistics. This treatment was introduced in September 1997 and backdated. For further details see “Outcome of the review of banking statistics, including effects on monetary and other banking statistics” in the September 1997 edition of Monetary and Financial Statistics.
Reverse repos include sale and repurchase agreements against marketable securities of all kinds and include any claims of the Bank of England on the M4 private sector resulting from official money market operations. A reverse repo is a type of secured loan.
Counterparts to Changes in M4: Alternative Presentation
M4 comprises certain MFIs’ liabilities held by the non-MFI private sector. See M4 explanatory notes.
The counterparts include:
M4 lending
This is sterling lending by MFIs to the M4 private sector. The M4 private sector consists of all UK residents other than the public sector and MFIs.
Public Sector Net Cash Requirement
The Public Sector Net Cash Requirement (PSNCR) was previously known as the Public Sector Borrowing Requirement (PSBR). However, the definition is unchanged and is the net balance between cash expenditure and cash receipts of the total public sector.
External and foreign currency flows
The impact of external and foreign currency factors on broad money is described in the Financial Statistics Explanatory Handbook and, in more detail, in Quarterly Bulletin articles in December 1978 (page 523) and December 1983 (page 525). The total of external and foreign currency flows in the counterparts to M4 is due to the current account of the balance of payments, and to the M4 private sector’s capital account and foreign currency transactions.
Net non-deposit sterling liabilities
Net non-deposit sterling liabilities comprise:
- changes in the sterling component of capital and internal funds and reserves of all MFIs (i.e. essentially their retained profits and issues of securities of over 5 years original maturity); less
- their sterling investments in UK MFIs and other non-financial sterling assets.
- The difference between building societies’ sterling transactions with each other pre-September 1997 and pre-October 1986, between banks in the UK.
Supplementary details
The Public Sector Net Cash Requirement (PSNCR) is equal to the sum of the Central Government Net Cash Requirement (CGNCR), the Local Government Net Cash Requirement (LGNCR) and the Public Corporations Net Cash Requirement (PCNCR).
The Central Government Net Cash Requirement (CGNCR) was previously known as the Central Government Borrowing Requirement (CGBR). The Local Government Net Cash Requirement (LGNCR) was previously known as the Local Authorities Borrowing Requirement (LABR) and the Public Corporations Net Cash Requirement (PCNCR) was previously known as the Public Corporations Borrowing Requirement (PCBR). The Central Government Net Cash Requirement on own account excludes on-lending to Local Government and Public Corporations; the LGNCR and PCNCR include this borrowing.
‘Other’ central government debt (series VQLI) includes other non-marketable debt and Northern Ireland government debt.
VALUATION AND BREAKS
The figures for transactions in liabilities and assets in foreign currencies (including gold) have been adjusted to exclude the effect of movements in exchange rates. Up to and including the third quarter of 1981, transactions in investments etc were entered as far as possible on a cash receipts/payments basis in the calendar quarter series, and to the extent that these cash transactions differed from changes in book values, an adjustment was made to the reported change in non-deposit liabilities. Thereafter, the figures were largely based on reported changes in book value until 1994 when flows for investments issued by non- residents are again based on transactions data.
The presentation of the alternative counterparts to M4 was detailed in the article ‘Measures of broad money’ in the May 1987 Quarterly Bulletin (P212). In October 1998, further ESA95 changes were adopted and backdated. These resulted in revisions to the PSNCR; the M4 private sector’s net purchases of ‘other’ central government debt; ‘other’ external and foreign currency finance of the public sector; and (to a lesser extent) banks’ net non-deposit sterling liabilities. The revisions netted out within the counterparts, so M4 itself was not affected.
Breaks in series:
Details of breaks in monetary series and temporary distortions to the data up to December 1988 are described in Technical Series paper No 23 entitled ‘Breaks in Monetary Series’ published by the Bank in February 1989. This paper was updated in Part 2 of the ‘Bank of England Statistical Abstract 1993’, and in section B of subsequent Statistical Abstracts.
Differences between tables
Changes in the money stock may not equal the differences in the amounts outstanding because of adjustments placed to the flows data. These remove the effects of reclassifications, exchange rate changes, write-offs and other non-transaction factors which may affect the amounts outstanding.
Building Societies transition to Bank of England reporting
Building societies' statistical reporting transitioned from the Financial Services Authority to the Bank of England on 1st January 2008, and some minor changes to the calculation of M4 counterparts have been implemented. The effects of these have been removed from the flows data, and are small in terms of the amounts outstanding.
FURTHER INFORMATION
- O’Connor, P (2008), ‘Transition of building society statistical reporting’, Monetary and Financial Statistics, January.
- Burnett, M (2006), ‘Seasonal adjustment of UK monetary aggregates: direct versus indirect approach’, Monetary and Financial Statistics, February
- Docker, S (2006),‘Suspense items – allocations within aggregates banks’ data’, Monetary and Financial Statistics, February.
- Daines, M (2005),‘Seasonal adjustment of monetary data: annual review’, Monetary and Financial Statistics, April.
- Golcher, R and Walls, S (2005),‘A comparison of the industrial analysis of bank lending to and deposits from UK residents and sectoral M4 and M4 lending’, Monetary and Financial Statistics, January.
- Hall, L (2004),‘Impact of securitisations and loan transfers activity on M4 lending’, Monetary and Financial Statistics, November.
- Bank of England (2003), ‘UK monetary aggregate: main definitional changes’, Monetary and Financial Statistics, July
- Westley, K and Brunken, S (2002),‘Compilation methods of the components of broad money and its balance sheet counterparts’, Monetary and Financial Statistics, October.
- Docker, S and Willoughby, D (1999),‘Monetary statistics and the monetary financial institutions consolidated balance sheet’, Monetary and Financial Statistics, July.
- Bank of England (1987), ‘Measures of broad money’ Bank of England Quarterly Bulletin, May, pages 212-219.
- Bank of England (1983), ‘External flows and broad money’ Bank of England Quarterly Bulletin, December, pages 525-529.
- Miles, C M and Bull, P.A (1978), ‘External and foreign currency flows and money supply’ Bank of England Quarterly Bulletin, December, pages 523-529.
