Explanatory Notes - Definition of ‘changes’
OVERVIEW
CAUSES OF ADJUSTMENTS
FURTHER INFORMATION
OVERVIEW
Changes in a series between one period and the next (referred to as ‘flows’) do not always equate to the difference between successive amounts outstanding. The starting point for calculating changes is the difference between these amounts outstanding but these are then ‘break-adjusted’ to form the flows. The reason for ‘break-adjustments’ is to remove the effects of factors that would otherwise distort the flow. Such adjustments bring the statistics into line with ‘transactions’ as defined by international standards for economic statistics (particularly the European System of Accounts, ESA 95).
CAUSES OF ADJUSTMENTS
Adjustments to flows can be made for a number of reasons. These include:
- Changes in the reporting population – for these, ‘joiner’ or ‘leaver’ adjustments may be made. Joiners and leavers are terms used to represent institutions which, in the case of a ‘joiner’, become part of the MFI sector, or in the case of a ‘leaver’, cease to be part of the MFI sector. A joiner or leaver could cause a large distortion to the month’s flow in which the movement occurred. Each case is considered individually as to whether it should be adjusted for or not. For instance a branch or subsidiary of a foreign bank obtaining authorisation in the UK would not normally be adjusted for as it will be attracting new business. An institution that was previously an ‘other financial corporation’ (OFC), now joining the MFI sector, would, on the other hand, usually be adjusted for, as it will bring existing business with it which should not be shown as an increase in the flow for that period.
- Foreign currency revaluation adjustments – these aim to remove, as far as possible, the effects in the change in levels (reported in £) which are purely due to movements in exchange rates. It is not possible to adjust the building societies data for exchange rate changes as there is no breakdown by currency available. Their foreign currency business is very small in any case.
- Miscellaneous adjustments – these are applied as and when required on the basis of regular reporting and information obtained from individual institutions. Examples include: write-offs, other revaluations of MFIs’ assets, long-term misclassifications, definitional changes, privatisations, movements of data out of the reporting population (for example, when banks securitise lending through vehicles resident overseas), and initial accounting effects of an institution’s restructuring.
FURTHER INFORMATION
For more details of break adjustment see:
- Bank of England (1989), ‘Breaks in Monetary Series’, Technical Series paper No 23.
- Bank of England (1999), ‘Monetary statistics and the monetary financial institutions consolidated balance sheet’, Monetary & Financial Statistics July.
