FISIM Developments in the National Accounts and implications for the CPI*

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FISIM Developments in the National Accounts and
implications for the CPI

• Kim Zieschang
• IMF
• ECE-ILO CPI Meeting
• Geneva
• Workshop on Financial Services in the CPI
• May 10, 2010

The views expressed herein are those of the
author and should not be attributed to the IMF,
its Executive Board, or its management
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Overview

• Financial services in the System of National
  Accounts 2008 (2008 SNA)
• Directly measured
• Indirectly measured (financial intermediation
  services indirectly measured, or FISIM)
• Risk and insurance within indirectly measured
  services
• Loan valuation and the loan interest rate
• The reference rate
• FISIM in the PPI
• FISIM in the CPI

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Financial services in the System of National
Accounts 2008 (2008 SNA) 1

• Directly measured (fee for service)

• Indirectly measured (no explicit fee)

• Mortgage origination
• Portfolio management
• Tax advice
• Estate management
• Initial public offerings of stock (shares)
• Corporate restructuring
• Credit card transaction fees
• Others, such as
• Safe deposit box services
• Check clearing
• Financial services associated with the
  acquisition and disposal of financial assets and
  liabilities in financial markets (price times
  transactions processed)

• All services charged indirectly through the
  spread between the rate earned on assets and the
  rate paid on liabilities
• Can cover some of the same services that are
  partly or wholly directly charged depending on
  the institution and the deal offered,
  particularly to depositors

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Financial services in the 2008 SNA 2

• Directly measured services
• No particular difficulty in principle, as price
  and quantity are clear
• The usual issues with determining service
  characteristics and controlling for quality change

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Financial services in the 2008 SNA 3.1

• Indirectly measured services
• In principle, the SNA methodology for measuring
  indirect financial services can be applied to
  each account within the Loans financial
  instrument class (2008 SNA asset code AF4) and
  Transferrable and Other deposits instrument
  classes (AF22 and AF29) for each financial
  corporation having these instruments on its
  balance sheet
• Loans FISIM interest receivable on the loan
  account interest cost of funds at a reference
  rate of interest
• Deposits FISIM interest cost of funds at a
  reference rate of interest interest payable
  on the deposit account

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Financial services in the 2008 SNA 3.2

• Indirectly measured cont.
• The 2008 SNA applies FISIM only to loans and
  deposits and not to other financial instruments
  (unlike the 1993 SNA, which made no such
  limitation)
• Traditionally, the SNA has only applied FISIM to
  financial instruments on the balance sheets of
  financial corporations, and to these same
  instruments on the balance sheets of the
  counterparties to financial corporations
• Household to household loans are out of scope,
  for example
• Counterparties to financial corporation financial
  instruments are nonfinancial corporations,
  general government units, households, and
  nonprofit institutions serving households

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Risk and insurance within FISIM 3.2.1

• Loans (AF4) are charged at an interest rate that
  includes a risk premium that varies with, among
  other things, the lenders assessment of the
  borrowers risk of default
• Current discussion among national accountants
  focuses, among other things, on whether the risk
  premium itself is payment for services or not
  and, if not, whether it should be deleted from
  the loan rate in applying FISIM
• Banking service output price and volume
  considerations may suggest that there is no need
  to exclude risk premia from FISIM, even if not
  payment for service by themselves, because the
  risk premium can be viewed as part of the price
  of the service but not part of the volume
• Another argument is that the risk premium pays
  for risk mitigation activities undertaken by
  holders of loans, and thus is a payment for
  service and should be part of FISIM the risk
  mitigation services thus involve an internal
  default insurance operation, or purchased
  insurance (e.g., via purchase of and paying
  premiums on credit default swap contracts)
• Possible issue can swap contracts be considered
  sources of insurance services in the SNA?

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Risk and insurance within FISIM 3.2.1

• A similar issue is being discussed on maturity
  premia, with a similar point-counterpoint
• Point Maturity premia are not a payment for
  service and should be deleted from the loan rate
  when applying the SNA FISIM formula
• Counterpoint Maturity risk premia are a payment
  for the cost of (1) liquidity or term risk
  mitigation activity (matching a portfolio of
  long-duration loans with short duration
  liabilities such as Transferrable deposits
  AF22), or (2) purchased insurance against term
  risk (e.g., via purchase of, and paying premiums
  on, interest rate swap contracts)
• Possible issue can swap contracts be considered
  sources of insurance services in the SNA?
• Price-volume point maturity premia may be left
  in the value of output, regardless of the point
  of view taken, and dealt with as either price
  (non-service) effects or volume (service) effects

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Loan valuation and FISIM 3.2.2

• Though not widely discussed as yet, another
  feature of the SNA, including the 2008 SNA,
  bearing on the value, price, and volume of FISIM
  is the valuation of loans at contract or book
  value rather than market value
• Contract loan rate refers to an earlier, loan
  origination period rather than the current period
• FISIM is generally calculated using a current
  period reference rate, such as the interbank rate
• Mismatch in reference periods
• Can lead to volatile and seemingly perverse
  results (negative FISIM)
• Should loans be market valued for the specific
  purpose of calculating FISIM?

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Risk, insurance, and loan valuation effects
within FISIM Example from publicly available
Federal Deposit Insurance Corporation and MarkIt
CDS data on the USA
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FISIM in the PPI

• Scope Loan asset and deposit liability accounts
  on the books of financial corporations
• Base quantity accounts
• Quality account services
• Item specification account number with specified
  services included at no separately charged cost
  (other than interest)
• Service price per account user cost price user
  cost rate amount on account
• Loans
• User cost rate (market?) loan rate reference
  rate
• Amount on account (market?) value of loan
• Deposits
• User cost rate reference rate deposit rate
• Amount on account value of deposit account
• Weights are deposit and loan FISIM receivable by
  financial corporations by account number/account
  class

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FISIM in the CPI

• Scope non-business deposits owned by, and
  non-business loans owed by households as
  counterparties to financial corporations
• Excludes mortgages, which the SNA would consider
  business loans, the services from which are
  intermediate consumption of the household real
  estate services industry (within, e.g., ISIC,
  Rev. 4, 6810, see http//unstats.un.org/unsd/cr/re
  gistry/regcs.asp?Cl27Lg1Co681)
• Base quantity accounts
• Quality account services
• Item specification account number with specified
  services included at no separately charged cost
  (other than interest on loans or foregone
  interest on deposits)
• FISIM price per account is calculated same as for
  PPI, except it applies to household loan and
  deposit accounts as noted
• Weights are deposit and loan FISIM payable by
  households by account number/account class.

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National Accounts Prospects

• The Inter-Secretariat Working Group on National
  Accounts (ISWGNA) is planning to convene a Task
  Force this fall (2010) to address the FISIM
  questions touched on in this presentation, among
  others, as part of the 2008 SNA research agenda

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• Thank you