Eurostat/C1/FISIM 08 EN
Orig: EN

FISIM Workshop
30 June 2004
Luxembourg, BECH Building
Room Quetelet

Occurrence of negative FISIM

Point 5 - IV on the agenda

Introduction

The result of the questionnaire has shown that negative FISIM occurs. Independently from the quantitative importance one can ask whether there are conceptual shortcomings in the FISIM regulation which results in negative FISIM.

  1. The FISIM regulation is based on the idea that there is an average interest rate, called "reference rate", which is lower than the interest rate for loans and higher than for deposits. This makes the business profitable for banks. In the FISIM regulation the reference rate equals the interbank rate.

However, the regulation describes a point in time when a bank has to take a simultaneous decision: to finance and to refinance. If a (positive) decision is taken, interest flows are determined for the lifetime of the contracts on the asset side as well as on the liability side (matching maturities assumed) and a positive margin is guaranteed. This positive margin is independent from future changes in the reference rate. The FISIM regulation in contrast uses a current reference rate to determine the profitability of a historical decision and this is a general conceptual reason for negative FISIM.

  1. The FISIM regulation assumes that a clear borderline can be drawn between loans and deposits on the one side and bonds on the other side. Especially in the case of insurance investment in banks these firms choose between bearer (coupon) bonds which are securities and registered bonds which are deposit. From an economic point of view there is only a small difference between both, but the FISIM regulation treats them differently. This similarity is especially valid in respect of the interest rates. These interest rates are relatively high as these are “long-term” arrangements. Combining high “long-term” interest rates of insurance deposits with low “short-term” interbank rates results in negative FISIM as observed in the investigation.
  1. The FISIM regulation assumes a pure market orientated behaviour of banks. However, there may other economic but not market orientated behaviour exists.
  2. Tax orientated behaviour – transactions between domestic banks and foreign subsidiaries may be caused by different taxation of revenue in the various countries. This will be reflected in the cross border interest flows.
  3. Currency orientated behaviour - in some MS, not members of the Monetary Union, loans and deposits are denominated in EURO, i.e. a foreign currency. Although it is difficult evaluate the impact of this fact in detail, it suggests itself that the behaviour of banks in these countries is influenced by that.
  4. Ownership orientated behaviour banks owned by other sectors (especially Government sector) may allow credits to their owners at non market conditions

Negative FISIM was recorded in the allocation of FISIM by user sectors. Only rare and sporadic negative results were obtained.

For all the Members States, negative FISIM was not recorded in the Household (S.14) sector (except for Latvia). Negative FISIM was mostly recorded in General Government (S.13) sector on Loans side and in Insurance Corporation and Pension funds (S.125) sectors on Deposits side.

Negative FISIM was also recorded with the Rest of the World (S.2) sector.

Negative FISIM vis-à-vis resident institutional users sectors

CzechRepublic recorded negative FISIM in 1999 data on loans in the S.11, S.12 and S.13 sectors, and it was as follows:

LOANS granted (million CZK)
User
Sectors / Stocks / Interest receivable / Loans stocks
x internal reference rate / FISIM on Loans
1 / 2 / 3 / 4 = 2-3
S.11 / 835214 / 67894 / 79011 / -11117
S.124 / 60836 / 4217 / 5755 / -1538
S.13 / 30972 / 2387 / 2930 / -543

In Spain, occurrence of negative FISIM is exceptional, and it was as follows:

in million euros

Loans to General Government1999/ -42000/ -17

Deposits from Insurance corporations1997/ -91998/ -1

Negative values can arise due to the existence of credits to subsidies (these credits are usually granted by the Official Credit Institute, one of the Spanish credit institutions), and/or deposits with especially high interest rates because of special conditions for institutions in the group.

In Latvia negative FISIM was recorded in 2002 in the following sectors on deposits side:

Million LTL / Average stocks / Accrued interest / Stocks * R.I.R / FISIM
Insurance corporation and pension funds / 23 130 / 1 019 / 482 / -537
General Government / 72 632 / 1 900 / 1 514 / -386
Households as consumers / 637 285 / 22 378 / 13 284 / -9 094
NPISH / 19 116 / 671 / 398 / -273

In Poland, in the first trial calculation and allocation of FISIM, negative value of FISIM was recorded on deposit of S.124.

Slovenia recorded negative FISIM on deposits in the following sectors:

DEPOSITS received (million SI Tolar)
User
Sectors / Stocks / Interest payable / Deposits stocks x internal reference rate / FISIM on Deposits
5 / 6 / 7 / 8 = 7-6
S.124+ S.125 / 164171 / 18905 / 12641 / -6264
S.13 / 201470 / 18707 / 15513 / -3194
S.15 / 31757 / 2615 / 2445 / -170

Sweden recorded negative FISIM on loans graded to the following sectors:

LOANS granted (million SEK)
User
Sectors / Stocks / Interest receivable / Loans stocks
x internal reference rate / FISIM on Loans
1 / 2 / 3 / 4 = 2-3
S.125 / 31116 / 1699 / 1748 / -49
S.13 / 91150 / 4704 / 5122 / -418

In the UK, negative FISIM has been common until most recent years. Typically building societies have paid higher rates than banks on deposits - higher even than the reference rate which is the inter-bank rate. The absence of negative FISIM more recently may be a consequence of a coming together of banks’ and building societies’ markets (access to funds) and hence rates. A consequence of negative FISIM is a negative margin in the base year and hence negative FISIM at constant prices, throughout the entire series.

Luxembourg recorded negative FISIM on loans graded to the following sectors:

LOANS granted (million euros)
User
Sectors / Stocks / Interest receivable / Loans stocks
x internal reference rate / FISIM on Loans
1 / 2 / 3 / 4 = 2-3
S.124 / 636.5 / 21.1 / 24.0 / - 2.9
S.125 / 184.7 / 6.8 / 7.0 / - 0.2
S.13 / 625.3 / 20.2 / 23.6 / - 3.4
S.14 (intermediate) / 6 841.5 / 253.9 / 258.0 / - 4.1

6.2. Negative FISIM vis-à-vis the rest of the world (on imports and exports)

Belgium recorded negative FISIM for imports and exports. This may be due to the way accrued interest were calculated (data model applying interest rate to stocks) for S.2. The interest rate used in the data model was probably too low. From 2003 onwards, the way we calculate accrued interest for S.2 was improved by estimating those flows in the framework of the estimation of the interest matrix instead of estimating the flows of interest from and to S.2 separately/independently from the flows of the other sectors.

Estonia recorded negative export of FISIM to non-resident FSs on Loans, whereas Lithuania recorded negative export of FISIM on both loans and deposits to FIs.

Poland recorded negative export for:

-Non-resident FIs on loan and deposit side,

-Non-resident non-FIs on deposit side.

Table 6: Occurrence of negative FISIM

EU-25 / Negative FISIM recorded / Comments
BE / Yes / Trade data
CZ / Yes / Loans for S11, S12 and S13
*DK
DE
EE / Yes / Export of FISIM to non-resident FIs
EL / NO
ES / Yes / Exceptional Loans – S.13 and Deposits – S.125
FR
*IE
IT / NO
CY / - - - / Calculations in progress
LV / Yes / Deposits of S.125, S.13, S14 (final cons.), S15
LT / Yes / Export of FISIM to non-resident FIs
*LU
HU / NO
MT / - - - / No experience
NL / NO
AT / - - - / Data due in July 2004
PL / Yes / Deposits of S.124 and export to non-FIs; loans and deposits export to FIs
PT / NO / Negative FISIM was recorded in 2001 and 2002 in deposits of import and export but not in 1999, as requested in the questionnaire
SI / Yes / Deposits of S.124+S.125, S.13, S.15
*SK
FI / NO
SE / Yes / Loans to S.125 and S.13
UK / Yes