Explanatory Notes - M4 excluding intermediate other financial corporations (OFCs)

OVERVIEW
AVAILABILITY
SOURCES
DEFINITIONS
VALUATION AND BREAKS
FURTHER INFORMATION


OVERVIEW

M4 excluding intermediate OFCs (M4^ex) is a more economically relevant measure of broad money than the headline measure of M4.

AVAILABILITY

Data are available quarterly, from 1997 Q4 onwards for amounts outstanding and from 1998 Q1 onwards for flows.  Data are seasonally adjusted (see Definitions for more detail).
A monthly version is available from July 2009 data onwards.

SOURCES

UK-resident banks and building societies report data directly to the Bank of England on form AD.  Approximately 165 banks and building societies with eligible liabilities over £400mn or private sector deposits or loans over £1,000mn report the data on a monthly basis.

DEFINITIONS

In the 2007 Q3 Quarterly Bulletin , the Bank of England set out a proposal to modify the measurement of UK M4 by excluding the money holdings of some OFCs, in order to obtain a better measure of those money holdings that are likely to be used as a medium of exchange.  Several types of OFCs mainly provide intermediation services to banks and building societies.  The deposits of these 'intermediate OFCs' are excluded from this measure of broad money. Intermediate OFCs are defined as: non-bank credit grantors; mortgage and housing credit corporations; bank holding companies; securitisation special purpose vehicles and other activities auxiliary to financial intermediation.  In addition to the deposits of these five types of OFCs, sterling deposits arising from transactions between banks or building societies and 'other financial intermediaries' belonging to the same financial group are excluded from this measure of broad money. Until December 2010, estimates of these intra-group deposits were based on anecdotal information provided by a sample of banks. From January 2011 onwards, these intra-group deposits are collected as part of the reporting on form AD.

The data are constructed as follows:
Quarterly M4ex is calculated as households' M4 (seasonally adjusted) plus PNFCs' M4 (seasonally adjusted) plus NIOFCs M4 (seasonally adjusted). More details are available in the article published in the September 2010 Bankstats (see www.bankofengland.co.uk/statistics/ms/articles/art1sep10.pdf ). Given an increase in the volatility of the intermediate OFCs component of money, and the short run of monthly data available for that component, robust seasonal adjustment of this monthly series is not currently possible.  The monthly seasonally adjusted data presented are estimates, the construction of which is detailed in an article in the November 2010 Bankstats (see www.bankofengland.co.uk/statistics/ms/articles/art1nov10.pdf).

VALUATION AND BREAKS

Gilt repo open market

From January 1996, a change in market rules was introduced allowing all market participants to borrow and lend gilts, where previously this was only available to gilt-edged market makers (GEMMs). This structural market change has resulted in breaks to repo series in January 1996.

Anecdotal information on banks' intra-group business is available back to 2005 Q1 only.  From January 2011, this information is collected more formally as part of Form AD.

Form AD also now includes a separate item for securitisation special purpose vehicles. Prior to January 2011, these formed part of mortgage and housing credit grantors, non-bank credit grantors and other financial intermediaries.

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 and M4 lending have been implemented.  The effects of these have been removed from the flows data, and are small in terms of the amounts outstanding.

Break adjusted quarterly seasonally adjusted levels series for M4^ex are available from the Bank's interactive database, please see: www.bankofengland.co.uk/mfsd/iadb/index.asp?first=yes&SectionRequired=A&HideNums=-1&ExtraInfo=false&Travel=NIxSTx

FURTHER INFORMATION