FISIM: Current Research at Statistics Canada October 4th and 5th, 2010 Eurostat Task Force on FISIM...

FISIM: Current Research at Statistics Canada

October 4th and 5th, 2010

Eurostat Task Force on FISIM

Jim Tebrake – Statistics Canada

23-04-21Statistique Canada • Statistics Canada2

FISIM – Current Research

The Canadian System of National Accounts is currently being revised to align with SNA 2008. Revised data will be released June 2012.

One of major revisions includes a change in how we measure and allocate FISIM.

Status of our research:• Problems with the current methodology• An alternative method for allocating FISIM• Data Sources


Current Methodology

Financial Institution Property Income Receivable

Interest Payable Global FISIM

Banks 1000 900 100 ….

1. Within the CSNA “Global FISIM” is defined as the difference between Property income receivable and interest payable. This includes FSIM from own-funds.

2. In the case of interest received from own-funds, we only want to include the service fee in our measure of FISIM. In order to do this we need to remove the ‘pure rate of interest measure – SNA Interest’ from the value of global FISIM calculated above.

Financial Institution

Effective Interest Rate on Loans

Effective Interest Rate on Deposits

Reference Rate (mid-point)

Total Interest Bearing Assets

Total Interest Bearing Liabilities

Own-funds Adjustment

Banks 6% 2% 4% 2000 1000 40 ….


Current Methodology (continued)

3. Net FISIM = Global FISIM minus the own-funds adjustment

4. The FISIM estimates are then distributed into a depositors portion and a borrowers portion, representing the service provided to both types of transactors. This distribution is carried out for each type of financial institution using their respective outstanding loans and deposits with the exception of sales financing companies where a margin approach is used directly

Financial Institution Global FISIM Own-funds Adjustment

Net FISIM

Bank sector 100 -(40) 60 ….

Financial Institution

FISIM Assets (Loans)

Liabilities (Deposits)

Total % Share Loans

% Share Deposits

FISIM Allocated to Loans

FISIM Allocated to Deposits

Banks 60 2000 1000 3000 66.7% 33.3% 40 20 ….


Current Methodology (continued)

6. The depositors portion is further divided into the following CSNA sectors using the assets of each sector (or liabilities from the financial sector’s perspective). Sector Deposits % Share FISIM

Persons 500 50% 10 Corporations and unincorporated businesses

300 30% 6

Governments 100 10% 2 Non-residents 100 10% 2

7. For lenders, a fixed margin is applied to short, medium and long-term loans to derive an estimate of FISIM for the financial institution. This is compared to the net FISIM for loans and the difference is prorated to the different loan categories

Loan Type Loans Outstanding Fixed Margin FISIM Allocated FISIM

Prorated Difference

Final FISIM

Short Term 200 3.4% 13.6 2.1 15.7 Medium Term 200 1.56% 6.2 2.1 8.4 Long Term 600 0.8% 9.6 6.3 15.9 Total 1000 29.4 40 10.5 40


Current Methodology - Shortcomings

There are three major shortcomings with the CSNA approach:• It assumes that the service margin is equal for both loans and

deposits. • It assumes that the service margin attributable to depositors is

the same, regardless of the sector. • The fixed margin, used in the calculation of loan FISIM by

sector, assumes the same service fee across loan types and through time.


Alternative Method

Financial Institution Property Income Receivable

Interest Payable Global FISIM

Banks 1000 900 100 ….

1. Global FISIM is defined as the difference between Property income receivable and interest payable as per the current methodology

2. An own-funds adjustment is still required, but rather than using a mid-point reference rate as in the current CSNA methodology, a series of reference rates for various loan and deposit types and terms to maturity would be computed.

Financial Institution Reference Rate Total Interest Bearing Assets

Total Interest Bearing

Liabilities

Own-funds Adjustment

Savings Deposits 1% 1000 Term Deposits 2% 1000 Total 1.7% 2000 Personal loans, unsecured (1 year term)

3% 1000

Non-residential mortgages (3-year term)

4% 2000

Total 3.5% 3000 Own-funds Adjustment 2.4% 3000 2000 24


Alternative Method

3. Net FISIM = Global FISIM minus the own-funds adjustment

Financial Institution Global FISIM Own-funds Adjustment

Net FISIM

Banking sector 100 -(24) 76 ….


Alernative Method

Effective Interest Rates Loan Category <1 year to

maturity 1 year >2 years

to maturity Personal lines of credit, secured

6%

Reference Rate Loan Category <1 year to



4.5%

Outstanding Loans Loan Category <1 year to



1000

FISIM Loan Category <1 year to



15

4. Independent of the measure of net FISIM, a value of FISIM is calculated for individual loan types and terms to maturity.

This is done by calculating an effective interest rate based on the interest revenue received over the corresponding average loan balances, for a given period, for individual loan types and maturities. A reference rate that is ‘service free’ is then selected for each loan type. The reference rate reflects the same risk and maturity profile as the outstanding loans from which the effective interest rates are calculated.


Alternative Method

5. This process is repeated for all types of financial institutions and for both loans and deposits. The total value of loan FISIM and deposit FISIM are then added together and compared to the aggregate measure of net FISIM. The difference between the two is allocated to both depositors and lenders based on their respective FISIM.


Some Results

Year 2008 Current Methodology

Net FISIM (New

Methodology)

Multiple Reference

Rate (MRR)

Difference (MRR –

Net FISIM)

MRR - with

Proration (A)

Difference Current vs

New Methodology

FISIM - Personal loans 8,514

6,720

6570 -1943

FISIM - Business loans 3,221

3,562

3483

261

FISIM - Mortgage loans 3,501

6,545

6399 2898

FISIM - Government loans 53

55

54 1 FISIM - Loans to Non-

residents 430

463

453 23

Total Loan FISIM 15,719 17,345 16959 1240

FISIM - Personal Deposits 7,817

7,952

7775 -42

FISIM - Business Deposits 9,481

8,578

8387 -1094

FISIM - Government Deposits 144

156

153 9 FISIM - Deposits From Non-

residents 1,984

2,177

2129 144

Total Deposits FISIM 19,426 18,863 18443 -983

Net FISIM 35,145 35,402 36,208 -806 35,402 257

Final Demand 18,941 17,084

Revision to Final Demand

-1808

While the proposed methodology does not have a large impact on the overall level of FISIM it does have a significant impact on the distribution among borrowers and lenders and between final demand and intermediate inputs.


Data Sources – New Lending by type and maturity

In order to implement the above methodology Statistics Canada plans to complement our existing data sources with information currently being collected by the Bank of Canada (Canada’s central bank). In the first quarter of 2010, the Bank of Canada began collecting lending information from the largest Canadian chartered banks, on a monthly basis. The Bank of Canada collects both new lending for various loan categories, and terms to maturity as well as the interest rate charged on those loans for the given month.

Interest rates charged on selected asset categories

All Variable Rate

<1 year 1 to <3 years

… 7 years and over

New funds advanced to individuals for non-business purposes in the reporting month

Personal loan plans …..

New funds advanced to the business sector in the reporting month

To regulated non-bank financial institutions

Lease receivables ….

Total selected business loans

Funds advanced - Canadian dollar assets

New funds advanced to individuals for non-business purposes in the reporting month

Personal loan plans …..

New funds advanced to the business sector in the reporting month

To regulated non-bank financial institutions

Lease receivables ….

Total selected business loans


Data Sources – Reference Rates reflecting terms and maturity

Calculating the Weighted Reference Rate and Effective Rate Period New Lending Effective Rate Reference Rate January 1000 5.0% 3.0% February 2000 5.5% 3.5% March 3000 6.0% 3.5% April 2000 5.5% 3.25% Total 8000 5.6% 3.4%

Value of Loans

Effective Rate Reference Rate FISIM

Outstanding loans 8000 5.6% 3.4% 176 New lending (May) 500 6.0% 3.25% 13.75

Statistics Canada will be able to generate weighted average reference rate that will have the same implied risk and maturity profile as the effective interest rate (or a least be a close approximation).

Given we have limited information on repayments, we will prorate them based on the outstanding loan balances.


Data Sources – Reference Rates

2008 Effective

rate Reference Margin Note for Reference Rate Personal Loans - Credit Card 11.56% 6.56% 5.00% [Fixed 5%]

Personal Loans - Other 6.15% 4.25% 1.90% [75% 3 month BBB Corporate Paper, 25% 3 year BBB Corporate Bond]

Government Loans 4.53% 2.83% 1.70% [3 month T-bill + 0.15% spread for Municipal & School]

Business Loans - Short-Term 4.61% 3.38% 1.24% [Over Night Money Market] Business Loans - Lease 6.04% 4.45% 1.59% [3 year A Corporate Bond] Business Loans - Other 4.92% 4.06% 0.85% [3 month Bankers' Acceptance]

Mortgage Loans 4.70% 3.34% 1.36% [Weighted Average Mortgage Backed Securities]

Loans to Non-Residents 4.88% 3.91% 0.97% [Weighted Average Business Reference rate]

Personal Deposits - Saving & Demand 1.80% 3.11% 1.31% [Over Night Money Market]

Personal Deposits - Fixed Term 3.59% 5.38% 1.79%

[60% 1 year AA Bank sub.debt, 30% 3 year AA Bank , 10% 5 year AA Bank ]

Business Deposits - Saving & Demand 1.92% 3.23% 1.31% [Same margin as the Personal Deposit] Business Deposits - Fixed Term 3.72% 5.50% 1.79% [Same margin as the Personal Deposit]

Government Deposits - Saving & Demand 1.53% 2.85% 1.31% [Same margin as the Personal Deposit] Government Deposits - Fixed Term 3.63% 5.42% 1.79% [Same margin as the Personal Deposit]

Non-Resident Deposits - Saving & Demand 1.95% 3.26% 1.31% [Same margin as the Personal Deposit]

Non-Resident Deposits - Fixed Term 3.72% 5.50% 1.79% [Same margin as the Personal Deposit]

We assume that market rates represent the service free rate. For a firm to access the market any associated costs such as underwriting, accounting and legal fees are explicitly charged ex-ante. Therefore we deem such an interest rate as “service free”.

A similar assumption is made for deposits where the reference rate represents the cost the financial institution would face if it was required to borrow on the market.


Some Results

FISIM: Current Research at Statistics Canada October 4th and 5th, 2010 Eurostat Task Force on FISIM...

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