SNA 1993 Updating Issue 6a Financial Services, FISIM

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SNA 1993 Updating - Issue 6aFinancial Services,
FISIM

• Giovanni Savio
• Statistics Coordination Unit, UN-ESCWA
• Workshop on National Accounts
• Cairo, 19-21 December 2006

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Objectives of presentation

• An important updating issue of 1993 SNA relates
  to Financial Services, issue 6a
• The Advisory Expert Group (AEG) has made
  recommendations on
• The definition of financial services and
• How financial services indirectly measured
  (FISIM) should be calculated
• Brief background on the issue and discussion of
  practical implications of the recommendations by
  AEG

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Main reasons for 1993 SNAupdating

• Financial corporations (FC) provide
  intermediation services without charging
  explicitly ( 6.122 - 6.124)
• FC defray their expenses and have operating
  surplus by charging interest rates on funds they
  lend that are higher than the rates paid on the
  funds borrowed. These intermediation services are
  indirectly measured, and they are called FISIM
• Definition of value of FISIM in 1993 SNA (
  6.125)
• Total property income receivable by financial
  intermediaries minus their total interest
  payable, excluding the value of any property
  income receivable from the investment of their
  own funds, as such income does not arise from
  financial intermediation

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Main reasons for 1993 SNAupdating

• However, the rapid developments in financial
  markets have changed the way FC are managed and
  operated, as well as their activities
• Nowadays, FC provide services other than
  intermediation, typically financial risk
  management and liquidity transformation, as
  opposed to risk-taking and repackaging of
  1993 SNA
• Furthermore, financial services are also provided
  by units making loans exclusively from own funds
  or securities rather than deposits

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AEG recommendations

• The AEG recommends to calculate FISIM
  independently on loans and deposits using a
  reference rate and considering two elements
• services from intermediation, as presently
  understood and
• services from lending from sources other than
  intermediated deposits
• The aim of the intermediation process is
  unchanged from 1993 SNA, namely ( 4.78)
• To channels funds from lenders to borrowers by
  intermediating between them
• However, it is not the only source of services
  associated with lending by financial institutions

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AEG recommendations

• Developments in financial markets create a
  mismatch between deposits and loans
• deposits are not only used to provide loans and
  
• own funds and other financial liabilities, such
  as debt securities, can be used in the provision
  of loans other than deposits
• The hypothesis that financial institutions
  provide indirect services only when
  intermediating between depositors and borrowers
  and that pure interest receivable from borrowers
  are fully transferred to depositors are no longer
  applicable

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AEG recommendations

• When intermediation takes place from deposits to
  borrowers only, FISIM (on loans (fL) and deposits
  (fD)) can be derived according to 1993 SNA
  principle, as interest receivable (RL) less
  interest payable (RD), namely the difference
  between the stock of loans and deposits (YL and
  YD) multiplied by their interest rates (rL and rD)

1993 SNA
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AEG recommendations

• The AEG defines FISIM as the stock of loans
  multiplied by the difference between the interest
  rate on loans and a reference interest rate (rr)
  plus the stock of deposits multiplied by the
  difference between a reference interest rate and
  the interest rate on deposits

1993 SNA rev. 1
1993 SNA
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Consequences

• FISIM derived from the two formulas are equal
  when the stock of loans is equal to the stock of
  deposits, as is for basic intermediation where
  all deposits are used by banks to provide loans
  and loans are only provided by deposits
• Advantages of the formula
• services provided to depositors and borrowers are
  independently estimated irrespective of what the
  deposits are used for and funds for providing
  loans come from and
• facilitates the distribution of indirect service
  charges to its users in a consistent way by
  allowing calculations at a detailed level

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Consequences

• Then the final formula suggested by AEG is
• which becomes, when units are lending
  exclusively from own funds

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Compilation issues

• The AEG does not prescribe which rate to use as
  reference interest rate, but recommends that it
  should not have service element inside and should
  reflect the risk and maturity structure of
  financial assets and liabilities to which
  indirect service charges apply
• A single reference rate should be used but, when
  relevant, a country can use multiple rates
• Different reference rates should be used for
  transactions in other currencies

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Compilation issues

• A simple way to obtain a reference rate
  reflecting the maturity structure of financial
  assets/liabilities is to calculate the average of
  the sum of the ratios of interest payable and
  receivable to the stock of deposits and loans as
  follows (the formula can be used for
  loans/deposits in foreign currency)

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Measurement in volume terms

• The measurement of the volume change in the
  output of financial intermediation should take
  into account the total output, including the
  direct charges
• In the absence of direct deflators for the output
  of FISIM, one of the following approaches may be
  used
• rate of change of the volume indicator can be
  derived using the rate of change of average
  stocks of loans and deposits deflated by a
  general price index (e.g. the GDP deflator)
  adjusted for quality change in the output of
  financial services
• the output indicator method which involves
  breaking down the different characteristics
  linked to financial services (numbers and values
  of loans and deposits, savings, money transfers,
  etc). For each characteristic, an appropriate
  volume indicator is derived, and volume
  indicators are then weighted together

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References

• The production of financial corporations and
  price/volume measurement of financial services
  and non-life insurance services, UNSD website
• Full set of provisional recommendations, UNSD
  website
• Smith, H. (2006), Financial intermediation
  services indirectly measured (FISIM), SNA News
  and Notes, n. 22, October, pp. 4-6