Measuring the production of financial corporations Progress Report by the OECD Task Force on...

Measuring the production of financial corporations

Progress Report by the OECD Task Force on Financial services (Banking Services) in

National Accounts

OECD Meeting of National Accounts Experts

Paris, 10th of October 2002

Labour Productivity Index, 1990 - 2000 (Basis 1990 = 100)

80

90

100

110

120

130

140

150

160

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

National Economy

Services (excl. Financial Intermediaries)

Financial Intermediaries

0

100

200

300

400

500

600

700

800

Revenues from trading in securities

Total revenues

Evolution of revenues of Swiss banks, 1985-2001Basis 1985 = 100

Recent changes on financial markets

• Enhanced role of the equity and bond markets for financial corporations

• New channels and institutional forms for financial services

• Increasing importance of intra-sectoral transactions

• Increased liquidity of assets and liabilities

Financial corporations:

“… all resident corporations or quasi-corporations principally engaged in financial intermediation or in auxiliary financial activities which are closely related to financial intermediation”

Identifying financial corporationsCurrent treatment in the SNA93


Financial Intermediation:

• “… productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market (….)”.



• Financial corporations “…. collect funds from lenders and trans-form, or repackage, them in ways that suit the requirement of borrowers”.




• Financial corporations “…. collect funds from lenders and trans-form, or repackage, them in ways that suit the requirement of borrowers”.

• “…. A financial intermediary does not simply act as an agent for other institutional units but places itself at risk by incurring liabilities on its own account”.


Points of analysis:

Identifying financial corporations

• Particular emphasis is put on financial intermediation

Points of analysis:


• Particular emphasis is put on financial intermediation activity.

Points of analysis:



• Activity is characterised by features of “Risk-taking” and “Repackaging”.

Points of analysis:




• General definition of financial intermediation - beyond the deposit and loan case characteristic of traditional banks.

Points of analysis:




• General definition of financial intermediation - beyond the deposit and loan case characteristic of traditional banks.

• Yet, at the same time, ambiguity about the role of “Own funds”. These do not provide any financial service.

The changing nature of financial activitiesRisk management

Risks involved in “traditional” risk management:

spread over time of risks that cannot be diversified by other means

• Mismatch of terms acceptance of interest rate risk

• Extension of credit lines acceptance of counterpart risk

• Taking of deposits acceptance of withdrawal risk


Features of “new” risk management:

• Strive for financial innovations

• Risk trading and shifting

spread of risks at a given point in time among units according to their risk profile

Bundling and unbundling of assets and liabilities

risk-adverse units bear less risk than risk-friendly units


• Strive for financial innovations

• Risk trading and shifting

spread of risks at a given point in time among units according to their risk profile

Bundling and unbundling of assets and liabilities

risk-adverse units bear less risk than risk-friendly units

• Financial corporations are nevertheless the ultimate bearers of certain types of risks

Features of “new” risk management:

The changing nature of financial activitiesLiquidity transformation

“Traditional” liquidity transformation:

• Investors: uncertainty about time when holdings of given financial asset are modified (mainly deposits)

• Borrowers: uncertainty about ability to raise funding in future (mainly credits)

Deposits/loans case - Typically Balance sheets

“Demand driven”

The changing nature of financial activitiesLiquidity transformation

“New” liquidity transformation:

• Arbitrage and counterpart activities, underwriting facilities

• Multiple interactions, short term perspective

On- and off-balance sheets“Market oriented”

“ Financial corporations are all resident corporations or quasi-corporations principally engaged in providing financial services. The production of financial services is the result of risk management, liquidity transformation and/or auxiliary financial activities”.


A working definition ...

“ Risk management and liquidity transformation are productive activities in which an institutional unit incurs financial liabilities for the purpose of acquiring mainly financial assets. Corpo- rations engaged in these activities obtain funds, not only by taking deposits but also by issuing bills, bonds or other securities. They use these as well as own funds to acquire mainly financial assets by making advances or loans to others but also by purchasing bills, bonds or other securities”.


A working definition (continued):

• Should financial corporations be identified via the services they provide, as suggested in the working definition?


Issues for discussion

• Do “Risk management”, “Liquidity transformation” and “Auxiliary financial activities” properly capture core activities of financial corporations?

• Does the group support the proposal of the task force to include own funds as a source for the provision of financial services?

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