Eurostat/C1/FISIM 18 EN
Orig: EN
FISIM Workshop
22 June 2005
Luxembourg, BECH Building
Room AMPERE
Discussion on methodological problems and solutions by components of FISIM allocation
based on the electronic discussion
Point 4 on the agenda
Introduction
This is the main discussion paper for Item 4 on the agenda for the FISIM workshop on 22 June 2005.
This paper summarises the electronic discussions we have had over the last five months. It discusses various problems encountered by the Members States in calculating FISIM allocation and provides useful information that lead to solutions.
This paper consists of seven sections.
Section I explains calculations of Internal and External Reference Rates,
Section II provides useful information on source data and methods in calculating FISIM allocation into Domestic User sectors,
Section III elaborates on the issue of breakdown of the Household sector between Intermediate and Final Consumption,
Section IV examines the new treatment of central banks in the light of the FISIM Regulation,
Section V provides useful information on source data and methods in calculating Exports and Imports of FISIM,
Section VI explains the methodology to calculate FISIM at constant prices as described in the Regulation and in the Handbook on Price and Volume,
Section VII gives a summary of the methods used to calculate FISIM allocation among Industries.
I. Calculation of Internal and External Reference Rates
The calculations of FISIM start from collecting the data on stocks and interest flows for loans and deposits and constructing matrices “from whom to whom”. It is important to ensure that the matrices on stocks and interest flows are consistent with each other (i.e. interest flows data are consistent with their corresponding data on stocks).
Then, these matrices on stock and interests of deposits and loans must be adjusted for the FISIM allocation concepts. For example, FISIM producing sectors consist of S.122 sector excluding Money Market Funds and S.123 sector excluding Investment Funds. According to the FISIM regulation (448/99, annex III, point 1a), Investment funds (as FISIM Producers) such as Holding Companies, Undertakings for Collective Investment in Transferable Securities (UCITS), and Mutual Funds should be excluded from the FISIM calculation. This is because these institutional units are not loan-givers or deposit-takers. (See also the minutes of the seminar of June 2004.)
Correct estimation of interest flows from direct sources is very important, because it is used in calculating Internal Reference Rate. This must to be obtained implicitly - although it can be subjected to comparisons against other measures of Internal Reference Rate derived as weighted average of published market rates.
The compilation of the Internal Reference Rate (IRR) is based on the matrices for interests and stocks, which cover all Inter-bank relationships for all units: within S.122; within S.123; between S.122 and S.123. As mentioned above, the matrices must be balanced, and consistent with each other and with FISIM concepts. For both matrices, the assets side (loans) must equal the liability side (deposits). This is why the Regulation requires the calculation of the IIR as a ratio of accrued interests to average (i.e., annual) stocks on loans. The IIR could also be calculated as a sum of loans and deposits, but the results will be the same as calculations based on loans only (it is assumed that the matrices are balanced - loans equal deposits).
Similarly, the compilation of the External Reference Rate (ERR) is also based on the matrices for interests and stocks, which cover all Inter-bank relationships for all units: within S.122; within S.123; between S.122 and S.123. There is good quality data available on Inter-bank relationships of the Resident Financial Institutions (FIs) (S.122 and S.123). However, the Inter-bank relationship between Resident FIs and Non-resident FIs is somewhat different. For many reasons there is no balance between loans and deposit - mainly due to coverage of information from Non-residents FIs (asymmetries). Therefore, the Regulation requires the ERR to be calculated as a ratio based on both loans and deposits.
It is also useful to perform some crosscheck analyses of the Reference Rates against the weighted average of published Market rates, which takes into account the different (short-term/mid-term) maturity structure of different loans and deposits. A hypothetical numerical example illustrates this better. Imagine the inter-bank relationship on loans and deposits in a country with only two banks. It is worthwhile mentioning that it is better to avoid naming the financial instruments as loans and deposits in the inter-banks transactions.
Suppose:
· Bank A makes a transfer of a financial asset of 90 (stock value) to Bank B. This transaction must be recorded in the accounts of both banks, i.e., 90 must be recorded on assets side of Bank A and on the liabilities side of Bank B.
· Bank B makes a transfer of financial asset of 10 (stock value) to Bank A.
Then these inter-bank transactions would be recorded as below.
Assets / LiabilitiesBank A / 90 / 10
Bank B / 10 / 90
Total inter-bank / 100 / 100
It should be noted that in the Inter-bank relationship the majority of transactions in loans are short term (see ESA95, para 5.75)
In theory, the weighted average[1] of published market rates (such as FIBOR-short term, EURIBOR-mid term, and bank-bonds-yield-long term) should be comparable with the calculated Internal Reference Rate.
For example, suppose that the asset of:
· Bank A of 90 is a short-term loan (recorded also as liability in Bank B)
· Banks B of 10 is a mid-term loan (recorded also as liability in Bank A)
Then the rate (that in theory would be) comparable to the Internal Reference Rate would be calculated as average of 90% weight of FIBOR rate, and 10% of EURIBOR rate.
One additional point should be made in reference to External Reference Rate. To conform to the ECB requirement to provide data from Euro-zone, EU, and extra-EU, the External Reference Rates should be provided to reflect the above-mentioned breakdown.
It is also suggested that there should be separate External Reference Rate (ERR) for exports and imports
· Exports, which would be calculated as ratio of interest received from Non-resident FIs on assets of Resident FIs to the corresponding stocks of assets
· Imports, which would be calculated as ratio of interest paid to non-resident FIs on liabilities of resident FIs to the corresponding stocks of liabilities
The Regulation is still obligatory. However, we would welcome MSs’ comments on this subject, which was presented at the FISIM workshop in June 2004. (See the minutes and the useful information in
http://forum.europa.eu.int/Public/irc/dsis/pnb/library?l=/national_accounts/fisim&vm=detailed&sb=Title, documents “FISIM 07” and “FISIM 12”)
II. FISIM allocation among the domestic user sectors
Once the Internal and External Reference Rates are calculated, FISIM on loans and deposits can be allocated using the above-mentioned constructed matrices of stocks and interests. Data is taken from the matrices “from whom to whom”, which consists of detailed breakdown of FISIM Producer sectors (S.122 and S.123) by counterpart sectors which are the FISIM Consumer sectors. The latter sectors can be either Resident sectors (S.11, S.124, S.125, S.13, S.14, and S.15) or Non-resident sectors (S.2 FIs and S.2 Non-FIs).
The calculation and allocation of FISIM among Domestic User sectors is based on the difference between the Actual Interest payable/receivable and the Internal Reference Rate.
It should be noted that sector:
· S.122 is the most important sector in calculating FISIM allocation, and data on stocks of loans and deposits are largely available from direct sources with required breakdowns into user sectors
· S.123 is of minor importance in producing FISIM, and in some case the data might not be very reliable
Important alternative source of information are the ECB money and banking statistics available (under ECB regulation 1998/16) from the National Central Banks of the EURO countries that provide data for both producing FISIM sectors by required counterpart information (User sectors).
Sectors S.122 and S.123 as FISIM Consumers
Although FISIM Regulation does not explicitly mention S.122 and S.123 sectors as Consumers of FISIM, in some rare cases these types of FISIM transactions might occur. The specific treatment in the allocation of FISIM has been discussed in electronic discussion group of Eurostat, and it is described below.
FISIM is a net concept. In the Inter-bank relationship one Financial Institution (FI) is a net FISIM Producer and the other one is a net FISIM Intermediate Consumer. According to this concept, the cases of S.122 and S.123 sectors as Consumers of FISIM that were recorded in Belgium, Denmark, Netherlands and Spain can be interpreted and summarised as follows:
· In Denmark, in both S.122 and S.123 sectors, there are FIs that are net FISIM Consumers. Their use of FISIM output is between 3% and 11%.
· In Spain, all FIs belonging to S.123 sectors are Net FISIM Consumers. Their use of FISIM output (generated by FIs belonging to S.122 sector - Net FISIM Producers) is approximately 4.5%. Moreover, S.123 sector contributes about 6.8% of total FISIM Intermediate Consumption.
· In Belgium and in the Netherlands, the contributions of FIs (as net FISIM consumers) belonging to the S.123 sector seem to be small, although their recording in NA is conceptually important.
As explained above, the FIs that are net FISIM Consumers should be recorded as Intermediate Consumption (P.2) on User side within the appropriated sector heading (i.e. S.123). In contrast, the FIs that are Net FISIM Producers should be recorded as Output (P.1) on the resources side. The recording rule is that the consolidated (netted-off) value of the FI should be recorded as Net FISIM Producer or Net FISIM Intermediate-Consumer, depending on the sign of the result. For example, if the consolidated FISIM value of the same FI is positive, it should be recorded as Net FISIM Producer in the FISIM output (P.1).
It should be noted that the above-mentioned recording concept has no impact on GDP, because the output (of these units belonging mainly to S.123 sector) recorded in P.1 is entirely consumed in Intermediate Consumption recorded in P.2 of the same sector.
It is worth noting differences between EU countries in the classification of some FIs. Depending on the national regulations of the financial institutions or financial activities, it could be that the same FI could be classified in the S.122 sector in one country and in the S.123 sector in another country. [In the author’s personal opinion, this could explain, for example, why there are no units belonging to the sector S.123 producing FISIM FIs in Spain, or why mortgage banks are not FISIM producers in Denmark.]
The above mentioned classification issues have also been mentioned by Jacques Bournay of France at the OECD Task Force meeting on Financial Service (OECD TFFS) on 9-11 May 2005. It is worth summarizing Jacques’ personal view.
“The present breakdown S.122/S.123 is not conceptually clear to me. It seems not very comparable between countries, especially in the context of S.123. To make it simple, it would be useful to revise slightly the breakdown of the S.12 sector, regarding the production or not of FISIM.”
“All net FISIM producers should be grouped in sub-sector S.122 (including all units interested in credit granting, like financial leasing or consumption credits, which are in S.122 in some countries and in S.123 in others). Sub-sector S.123 should group Mutual Funds and all ‘specialised units’, all those being by convention not FISIM producers. For instance, in Eurostat treatment, Mutual Funds are explicitly excluded from being FISIM producers on two grounds: they charge directly fees to their holders and they distribute exactly the property income they receive, so there is no margin.”
“As far as I know, there is no general agreement on this breakdown S.122/S.123, even among European countries. There are discussions in the ECB about some sub-sectorisation, but the main criteria is monetary/non-monetary, and not the criteria FISIM producer or not.”
More on the subject can be found at FAWG and OECD TFFS minutes, which focus on future SNA 2008.
Treatment of non-market units
The Non-market units, such as General Government (GG), have no Final Consumption of FISIM. These units make only Intermediate Consumption that increases the output of government services, calculated as a sum of costs (including Intermediate Consumption of FISIM). In other words, they appear in the Supply-Use framework as Final Consumption of the Government Services only (because they consume their own outputs), and not as Final Consumption of FISIM. (See the graphic illustrations below,)
Figure 1: Recording of FISIM of non-market units in the Supply-Use framework
Figure 2: Recording of FISIM of non-market units in the sequence of accounts
III. Calculation of FISIM intermediate and final consumption by households
According to the Regulation, services attributable to Household sector must be broken down into Intermediate Consumption (in their capacity as owners of dwellings or Owners of Unincorporated Enterprises), and Final Consumption.
Important alternative data sources are the ECB statistics on retail banking, already mentioned.
However, some of the Member States had problems in properly identifying Intermediate and Final Consumption of the Household sector, due to difficulties with the data of Households as Owners of Dwellings.
The Regulation, in the case of deposits, suggests allocating the corresponding FISIM estimates into final consumption.
At the FISIM workshop in June 2004, the problem with data-availability on dwellings loans was considered to be a serious one. It was suggested that even a rough estimate would be better than having no estimate. It was suggested that an MS could use shares of FISIM Intermediate and Final consumption of another MS that had a relatively similar economy.
In France, Household (S.14) Intermediate consumption of FISIM accounts for 1/3 of the total economy’s intermediate consumption of FISIM. Or looking from a different perspective, 3/4 of Households total FISIM consumption is recorded as Intermediate consumption, and 1/4 as Final consumption (see table 1 for more details). In addition, it was suggested that if the breakdown of S.14 is available for one year then this proportion could be used as a proxy for the other years.