In 1934, under the presidency of Franklin Delano Roosevelt, Treasury International Capital was implemented to provide data on the United States' International Portfolio Investment and Capital Movements, known today as TIC. The data was collected and reported by various agencies over the years, such as the Bureau of Economic Administration and the census, but problems arose due to a lack of interaction between agencies.
Problems existed with the type and quality of information in the early years, so the Office of Federal Statistical Policy and Standards coordinated statistical efforts across agencies and it ran smoothly for many decades. When the Office of Federal Statistical Policy and Standards lost its role in the 1980s, Treasury took over the functions of collecting and reporting.
How it Works
In 1983, after many years of negotiation, the Treasury agreed that the Fed was entitled to have access to TIC data. Thanks to better coordination between the two agencies, TIC data is now collected and quite accurately reported on a monthly and quarterly basis. The reason for this stems from the world crisis due to the Asian currency devaluation. These events caught the world off guard and alerted all nations that a better reporting system was needed.
Since 1974, and the TIC system redesign in 1978, TIC data has been collected and reported every five years and has only covered certain types of securities transactions. Only in the past 10 years has this data been reported on a quarterly then monthly basis. But the collection and types of data didn't come without problems.
Reporting Problems and Solutions
Currency transactions were never a factor in the early reporting of transactions. Traditionally, when $10,000 entered or left the United States, a Currency and Monetary Instruments Report was filed with customs. But this reporting never reflected TIC data. Today, dollar values as well as currency claims and liabilities of transactions are accurately reported thanks to easy computer transmission and accountability. This began in March 2003 to answer questions like: how does a trading firm incorporated in the United States handle transactions to and from the London office? What if that transaction resulted in a gain or loss, or what if those monies sat idle in an overseas bank account? What if a bank wrote off a bad loan? These are all now fully reflected in the TIC reports. (For more, read Forex: Money Management Matters.)
Purpose of TIC
TIC data is the collection and reporting of purchases and sales of U.S. securities and financial instruments by institutions, governments, central banks, corporations and many other entities. In earlier days, the U.S. was only concerned with reporting and collection of long-term government securities. Now the focus concerns all transactions, short and long term, such as stocks, derivatives, currencies, options, forwards and swaps as well as bank transactions and any cross-border transactions. The purpose is twofold: to report cross-border portfolio positions of nations, central bankers, corporations and other entities, and to determine dollar values that enter and exit the U.S. This is conducted for purposes of accountability and is important for monetary policy purposes. Data is used to determine balance of payments and international policy, and to track international financial markets. The balance of payments is published by the Bureau of Economic Analysis quarterly, in three sections: current account, capital account and financial account. The balance of payments is the debits and credits of the flow of funds into and out of the U.S. All information has a distinct analytical insight.
In 1974, overall ownership of securities by foreigners was 4.8 %, 13.5 % by 2003, while U.S. Treasuries accounted for 14.7 % in 1974 and 45.5 % by 2003. These numbers account for dispersions rather than concentrations by any one nation. Yet these numbers have dramatically increased since 2003 with nation-specific concentrations since part of modern day reporting is nation specific. Since September 2009, China held $798.9 billion in U.S. Government debt, up from $618.2 billion in September 2008. The next largest holder of US debt was Japan which held $617.2 billion in September 2008 and $751 billion in September 2009. Great Britain was third, but didn't come near these totals. (Learn more in Buy Treasuries Directly From The Fed.)
Assembling the Data
The monthly TIC data is distinguished by Treasury's TIC B Reports and the Federal Reserve's S reports. BQ reports are Treasury's quarterly reports and FR or FF belong to the Federal Reserve for quarterly reporting purposes. Each will be handled and explained separately with explanation of changes along the historic journey.
Treasury's BL1 reports dollar-denominated liabilities to foreigners, and excludes short-term instruments. BL2 reports dollar-denominated liabilities from foreigners, and includes longer-term instruments. Institutions refer to depository, bank holding companies, financial holding companies, brokers and dealers. Foreign institutions refer to central banks, ministries of finance, Treasuries, diplomatic establishments, international and regional organizations. FR 2050 is a weekly report of eurodollar liabilities held in foreign offices of U.S. banks. FFIEC 002 stands for Federal Financial Institutions Examinations Council Agency, and reports assets and liabilities of U.S. branches and agencies of foreign banks. They collect balance and off balance sheet information. FFIEC 019- county exposure report for US branches and agencies of foreign banks. This information is collected nation by nation. FR 2644 is a weekly report that collects information on borrowings, loans, deposits and selected balance sheet items.
FRY-7N U.S. reports non-bank subsidiaries held by foreign banking organizations. FRY-7Q capital and asset report for foreign banking organizations. These reports are compiled by the International Reports Division of the Federal Reserve Bank of New York and reported on TIC D forms, which also cover derivatives. The derivatives market had a notional value of $87 billion in 1998 to $454 trillion in June 2006, measured in payments. Measured by market value, it has a value of $3 trillion in June 1998 to $10 trillion in June 2006. Since 2007, derivatives data was reported in TIC data on TIC form D. Federal Reserve S forms for monthly data are U.S. entities that buy or sell long-term securities directly from or to foreigners. (For more, check out Do Options Sellers Have A Trading Edge?)
Quarterly reports are represented by forms BQ2, foreign currency liabilities and claims of depository institutions, and part two, customer's foreign currency liabilities to foreigners. BQ3 reports maturities of selected liabilities of depository institutions and bank holding companies to foreigners. FR2502a reports assets and liabilities of large foreign offices of US banks. Monthly TIC data reports can be looked upon as rollovers leading into the quarterly and semi-annual reports. Monthly and quarterly reports are released by the Treasury and found in detail on the Treasury's website.
While the International Portfolio Investment of Capital Movements was the beginning program in 1934, the program was suspended until 1943. The monthly and quarterly reports began in 1994 with many additions over the years as new financial products were introduced and new laws reflected expanded banking opportunities. Computers also helped the free flow and speed of capital in and out of borders. While the monthly and quarterly releases may draw criticism and praise from commentators, those employed in the TIC Department of the Treasury are not only experts but quite dedicated professionals. (For more, see Macroeconomic Analysis.)