Minutes of the FISIM Workshop

Eurostat/C1/FISIM 23 EN
Orig: EN

FISIM Workshop
22 June 2005
Luxembourg, BECH Building
Room Ampere

Minutes of the FISIM workshop

Item 1: Introduction and approval of the agenda 3

Item 2: State-of-play on FISIM 3

Item 2: Results of questionnaires on calculating sector allocation of FISIM 4

Item 4: Discussion on methodological problems and solutions 6

Item 4-I: Internal and External Reference rates 6

Item 4-II: Allocation of FISIM to domestic sectors 8

Item 4-III: Intermediate and final consumption of Households 10

Item 4-IV: Treatment of Central Bank (S.121) 13

Item 4-V: Export and Import of FISIM 14

Item 4-VI: FISIM at constant prices 18

Item 4-VII: FISIM allocation among industries 18

Summary of the conceptual problems and solutions 19

Action Points 20

Item 1: Introduction and approval of the agenda

1. The agenda of the FISIM workshop was introduced by Eurostat and agreed by the Member States (MSs).

2. This FISIM workshop is a continuation of the FISIM task force meetings, and aims to discuss best practices in developing methods to calculate sector allocation of FISM and to improve comparability of data.

3. This meeting was quite special, because it was the last one before all MSs introduce FISIM allocation in their National Accounts. It was also special, because it summarised the Electronic Discussion, where all FISIM compilers were sharing their experiences and practical approaches in calculating and allocating FISIM. Thanks to the ongoing Electronic Discussion group, Eurostat collected and shared data on calculations of FISIM allocation for 21 of the MSs. However, most of the data provided by most of the MSs were preliminary

Item 2: State-of-play on FISIM

4. Eurostat gave a paper on the degree of technical readiness to implement the FISIM calculations. It showed that 18 MSs were technically ready, 5 were technically partly ready, and 2 MSs were not ready (see summary in table 1 – FISIM 16 table1.xls).

5. MSs provided updates to the implementation dates. – as summarised in the table below.

Published / DE AT ES FR
June / EE IE SK
July / DK NL FI
September / BE IT LT LU HU PL PT SI
November / LV SE CY EL
December / UK
June 2006 / CZ

MT - to be confirmed - publication soon after June, as initially stated

6. Unit C2 explained the aim and scope of the double-transmission scheme. This is described in detail in document CN 572 - available at: http://forum.europa.eu.int/Public/irc/dsis/pnb/library?l=/national_accounts/meetings_national/meeting_2005_march&vm=detailed&sb=Title

Item 2: Results of questionnaires on calculating sector allocation of FISIM

7. Eurostat gave a paper on the current situation in the MSs regarding calculating sector allocation of FISIM based on results from the Excel files available in the ongoing Electronic discussion completed by 21 MSs.

8. Data used to calculate FISIM allocation were more reliable in the S.122 sector than in the S.123 sector. However, the latter plays only a marginal role in most Member States. Information on stocks of loans and deposits was available from direct sources, with the required breakdown by User sectors. In general, less detailed information is available on interest flows than on stocks. In a majority of countries, information on interest flows was available from direct sources, but with no breakdown between institutional sectors – hence it was necessary to estimate interest rates for each institutional sector in order to calculate this breakdown.

9. Substantial improvements were observed in calculating Imports of FISIM. However, the varying levels of reliability of the source data in some Members States were creating some quality problems. In general, data on Exports of FISIM were better constituted. Improvements were also observed in calculating the breakdown of household deposits (and, to a lesser extent, of household loans) that determine the part corresponding to Final Consumption and the part corresponding to Intermediate Consumption.

10. The impact of FISIM allocation on GDP at current prices averaged 1.2%. This was driven mainly by the increase of the Final Consumption Expenditure of Households. The impact was quite similar to that of the Trial exercise.

11. The Index of Volatility that measures the stability of the FISIM impact differed quite substantially between Member States

· Low Volatility (below 8%) in AT, SE, and NL

· High (above 20%) in PT, FR, BE, LT, PL SI, FI

12. The results were more volatile than in the Trial exercise. It was found that FISIM output is stable and that the volatility is driven by the share of FISIM output allocated to HH final consumption (which was volatile around the year 1999). The Internal Reference Rate has major impact on this volatility.

13. The French delegate mentioned that deposits (large amount of them attributed to Final consumption) cause this volatility, because it is characteristic that deposits have lower elasticity than loans.

14. The German delegate mentioned that there are differences in financial products offered by banks. For example, in the UK there is a higher variety of interests rates offered to HH, and a lower variety in Germany (usual fixed over time rate). This has an impact on the actual rates. In addition, there delays in applying the actual rates by banks, all of these have an impact on the FISIM margin.

15. Eurostat will analyse high volatility effect of the Internal Reference Rates around 1999, and provide an explanation of what causes this effect. It was decided not to smooth the Internal Rate - for practical reasons and also to comply with the Regulation. In addition, Eurostat advised those MSs (e.g., Portugal) that have high Index of Volatility to re-examine their calculations and to provide Eurostat with comparative analyses of the calculated Internal Reference Rate and weighted average of published inter-bank rates.

Item 4: Discussion on methodological problems and solutions

Item 4-I: Internal and External Reference rates

16. Eurostat gave a presentation on calculating Internal and External Reference Rates - summarising the ongoing Electronic Discussion. It showed that the calculations of FISIM start with collecting the data on stocks and interest flows for loans and deposits and then constructing matrices “from whom to whom”. It is important to ensure that the matrices on stocks and interest flows are consistent with each other and with the concepts of FISIM allocation.

17. The compilation of the Internal Reference Rate (IRR) is based on all Inter-bank relationships for all units: within S.122; within S.123; between S.122 and S.123. The data must be balanced, i.e., the assets side (loans) must equal the liability side (deposits). This is explains why the Regulation requires the calculation of the IIR as a ratio of accrued interests to average (i.e., annual) stocks on loans.

18. Similarly, the compilation of the External Reference Rate (ERR) is also based on all Inter-bank relationships. 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, i.e. asymmetries.

19. 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.

20. The German delegate said that Reference Rates in Germany are not calculated, but are derived as average of published interest rates, and there is more than one External Reference Rate. In Germany, the interest rates are not well known. The reason is that profit and loss accounts of FIs, that should provide necessary interest data, are polluted by additional non-separable information irrelevant for calculating the Reference rates. It can be summarised as follows:

· German interests are mixed with the interests of Luxembourg’s affiliates.

· Interests on loans and deposits also include some part of swaps.

In addition, the profit and loss accounts of banks used in FISIM calculation must be adjusted for NA concepts - i.e., the data from profit and loss accounts might include some interests that, according to ESA95, are not recognised as interests.

(see more on the subject in section 4-V)

21. The French delegate asked whether it is allowed to use two 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

22. Eurostat clarified that the Regulation requires calculating Internal and External Reference Rates, and that published rates should not be used. The calculated Reference Rates should be crosschecked against the weighted average of published rates, taking into account both maturity and currency structure of inter-bank assets and liabilities. This analysis should be performed to ensure that the calculations are of high quality.

23. Eurostat also stressed that the Regulation is clear that only one External Reference Rate should be used. It will however, examine for theoretical purposes only, the advantages of two External Reference Rates, in terms of improving the stability of the impact of FISIM allocation on GDP and Negative Export of FISIM. Preliminary analyses of two External Reference Rates are provided in Appendix A. The two External Reference Rates are defined below. One External Reference Rate on Assets is used to calculated FISIM on Assets (Loans) and the another one on Liabilities to calculated FISIM on Liabilities (Deposits)

· External Reference Rate on Assets is the the following ratio:

Interest received from Non-resident FIs on Assets of Resident FIs

the corresponding Stocks of Assets

· External Reference Rate on Liabilities is the the following ratio:

Interest paid to Non-resident FIs on Liabilities of Resident FIs

the corresponding Stocks of Liabilities

Item 4-II: Allocation of FISIM to domestic sectors

24. Eurostat gave an introduction to this subject. 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 that 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.

25. It also mentioned that important alternative sources of information are the ECB money and banking statistics available (the Regulation ECB/2001/13) from the National Central Banks of the euro area countries that provide data on the positions of the MFI (S122) sector by required counterpart information (User sectors).

26. Eurostat said that 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, there might be cases of S.122 and S.123 sectors as Consumers of FISIM.

27. The net FISIM concept was further discussed in section 4-V, summary section. It is decided to drop the net FISIM concept.

28. Eurostat also mentioned that there could be some borderline classification cases of FIs between S.122 and S.123. However, the Austrian, German and ECB delegates confirmed that classification of units of S.122 sector was discussed at various meeting at the ECB. As a result, ECB publishes (and updates on a monthly basis) a list of units that are classified as S.122, which includes in particular the Money Market funds.

29. In the discussion many delegates discussed the role of Investments Funds, Mutual Funds. It was confirmed that Investments Funds, Mutual Funds are not FISIM producers, but they could be FISIM consumers. The Regulation is clear that Investment Funds should be excluded from FISIM producing sectors.

30. Irish delegates asked whether Special Purpose Vehicle and Securitisation Vehicles for HH mortgages are considered as FISIM producers. It also mentioned that it has problems with data availability for these units, and is not sure whether these units should be included in FISIM productions as part of S.123. These units are administered by Banks. From Households perspective these units are seen as associated with banks, namely the liabilities of Households as seen as liabilities at the banks.

31. Eurostat answered that only Special Purpose Vehicle and Securitisation Vehicles for HH mortgages that were created by banks to do banking business (i.e. providing dwelling loans to HH) should be considered as FISIM producers.

32. The UK delegate said that it treated all SPV as part of S.123, and therefore as units generating FISIM. But its contribution to FISIM production is very small.

33. Eurostat stressed that there is a substantial number of SPV created by Non-Financial Corporations that are not involved in the banking business. These should not be considered as FISIM producers.

34. An important part of the item on allocation of FISIM to Domestic User sector was the presentation give by Reinhold Schwarzl on the Austria’s experience.

35. Austria introduced FISIM allocation into the National Accounts in autumn last year in connection to the benchmark revisions and chain-linking. The data are now available from 1976 onwards. It is essential that the calculations are simple, and that the impact of the results on NA data is stable. Some simplifications were made - e.g.: only S.122 sector is a FISIM producer; allocation of FISIM among industries is based on a GVA of each industry.

36. The data on stocks are sourced from the Supervisory Statistics that provide values and from Financial Accounts that provide detailed structure. The breakdown of Household loans is compiled using detailed data on mortgage loans to households for FISIM of Households as Owner of Dwellings, and data on households as Producers for FISIM as households as owners of Unincorporated Enterprises. There are no detailed data available for household deposits so, for simplicity the same breakdown is compiled in the same way as are loans.