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Update on Work of ISWGNA Task Force on FISIM

Herman SmithUNSD/DESA

Workshop on the Implementation of the 2008 SNA,

Kiev, 29 November – 2 December 2011

Agenda item 6c

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Outline of Presentation

• Background to FISIM issue• Terms of Reference of ISWGNA Task Force on

FISIM• Update on work of ISWGNA Task Force• Conclusions• Way forward

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Background to FISIM Issue

Calculation of FISIM• Refined with every SNA revision

• Financial services are defined in paragraph 4.98 of the 2008 SNA:

• The production of financial services is the result of financial intermediation, financial risk management, liquidity transformation or auxiliary financial activities

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Background to FISIM Issue

Calculation of FISIM• Broad international consensus to investigate further• On 2008 SNA Research Agenda

(a) Composition of FISIM (risk management and liquidity transformation)

Clarification

(b) Financial instrument and unit scope of FISIM

Research

(c) Connection between FISIM and income

Research

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Background to FISIM Issue

Calculation of FISIM

∙ ISWGNA Task Force to deal with clarification issue and focus on determining at most one reference rate per currency for calculating FISIM

∙ Coordination with regional Task Forces∙ European∙ Latin American

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Terms of Reference of ISWGNA Task Force on FISIM

ISWGNA Task Force to address 4 clarification

questions∙ Risk management∙ Liquidity transformation∙ Consistency of FISIM in international trade∙ Implications for price and volume measures

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Terms of Reference of ISWGNA Task Force on FISIM

Risk management (How to characterise and reflectrisk management/mitigation activities, includingexchange rate risk, in FISIM?) – 2 views∙ 1st view – Include risk premium in FISIM

∙ Covers risk mitigation activity∙ Do not match reference rate to risk profiles of

loans/deposits∙ 2nd view – Exclude risk premium from FISIM

∙ Represents distributional flows, not payment for services

∙ Use risk-matched reference rates

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Terms of Reference of ISWGNA ask Force on FISIM

Liquidity transformation (How to reflect

transformation of short-term deposits into long-term

loans in FISIM?) – 2 views∙ 1st view – Include this element in FISIM

∙ Use reference rate not matched to specific maturities of loans/deposits

∙ 2nd view – Exclude this element from FISIM∙ Use maturity-matched reference rates

∙ Question of whether FISIM should cover cost of hedging term risk arising from deposit-taking corporations lending long-term and borrowing short-term

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Terms of Reference of ISWGNA Task Force on FISIM

Consistency of FISIM in international trade∙ How is equality of exports and imports of FISIM

between economic territories affected by∙ Conversion between domestic and foreign

currencies?∙ Choice of reference rate?

∙ Link to idea of using different reference rates for different currencies

∙ Need for national accounts compilers to provide exports and imports of FISIM by institutional sector (including the rest of the world) to improve coherence between national accounts and balance of payments statistics

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Terms of Reference of ISWGNA Task Force on FISIM

Implications for price and volume measures∙ How will the clarification of above issues, including the

choice of reference rate, affect price and volume measures of FISIM?

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Update on work of ISWGNA Task Force

• Two meetings held• March 2011• July 2011

• Attended by wide range of experts from various countries and international organisations

• Intense and extensive discussions on the four clarification questions

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Conclusions

Risk Management• General agreement that credit default risk

should excluded from FISIM• However, by convention, it may not be

excluded due to lack of information

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Conclusions

Liquidity transformation• Term premium should be included in FISIM, but a

single reference rate should be used• Tests will be conducted on the following various

methods to calculate reference rate• Single reference rate using inter-bank lending

rates• Matching reference rate using different rates for

short-term and long-term deposits and loans

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Conclusions

Liquidity transformation• Reference rate calculated using the midpoint of

interest rates on deposits and interest rates on loans

• Average reference rate (weighted by the stocks of short-term and long-term loans and deposits) calculated using different rates for the short-term and long-term reference rates

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Conclusions

Consistency of FISIM in international trade• Single reference rate should be used to calculate

domestic FISIM• Appropriate reference rates for should be used to

calculate FISIM for each underlying currency • When stocks of deposits and loans are not available

to allocate FISIM to industries, shares of value added could be used

• International cooperation is needed to obtain information on FISIM imports using mirror statistics on the exports of FISIM

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Conclusions

Price and volume measures• In principle, output indicators could be used to

calculate volume measures of FISIM• However, method is data intensive • Also, difficult to determine weights for the output

indicators• Deflated stocks approach preferred• To use general price indices (excluding FISIM) as

deflators

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Way forward

• Draft preliminary report• Detailed guidance, including formulae, on tests• Decision on need for additional meeting• Final report to include results of tests• Timeline for completion of reports to be determined

after evaluation of time needed for tests

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Thank you