Agenda Item 2
FISIM
Meeting of the Advisory Expert Group (AEG)
on National Accounts
Luxembourg, 29-31 May, 2013
Nadim Ahmad, OECD
Presented by Peter van de Ven, OECD
What is the issue?
• Financial crisis:
– Interpretative difficulties of FISIM-movements
– Occurrence of negative FISIM
– Manipulation of LIBOR-rates
 Should liquidity transformation and credit fault risk be
excluded from FISIM?
 Two Task Forces created: Eurostat Task Force and
ISWGNA Task Force, which were later on merged into
one Task Force
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Mandate of the ISWGNA Task Force
• How the composition of the services that FISIM covers –
particularly (credit default) risk management and liquidity
transformation – affects the selection of the reference rate
and the price and volume breakdown of FISIM
• The financial instrument and unit scope of FISIM
• The connection between the recommendations on
implementation of FISIM and the definition of income
 First issue considered a clarification issue, the other two
issues need to form part of a medium-term research
agenda
 Additional issue: Occurrence of negative FISIM?
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Mandate of the ISWGNA Task Force
Four clarification questions:
• How should (credit default) risk management be
characterised and reflected in FISIM?
• How should liquidity transformation, the transformation
of short-term deposits into long-term loans, be reflected
in FISIM?
• How can FISIM be made consistent in international
trade?
• What are the implications of the above for the price and
volume measures of FISIM?
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AEG meeting 2012
•
•
•
•
•
•
Supported the recommendation of the FISIM task force on the measurement of
international trade.
A majority agreed with the tentative findings of the FISIM task force that
liquidity transformation (LT) services are part of FISIM and a single
weighted reference rate reflecting the maturity structure of loans and deposits
should be used.
Expressed divergent views on treating credit default risk as non-life
insurance services, and excluding this risk element from the calculation of
FISIM, although a majority supported this approach in principle.
Recognized that, if it was decided to exclude credit default risk from
the calculation of FISIM in principle, it may be difficult to implement
this in practice, and that there may be implications for the treatment of risk in
other parts of the accounts.
Agreed that the concept of negative FISIM required further discussion
and requested the FISIM task force to consider this issue and its implications,
amongst others for volume measures of FISIM, in more depth.
Requested the FISIM task force to review the 2008 SNA for possible
inconsistencies in the guidance on inter-bank services.
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What has happened after AEG
meeting 2012?
• Extensive testing of using different reference rates, especially
within the EU:
– Short-term inter-bank rate
– Weighted average reference rate
 Conclusion: some improvement in the occurrence of negative FISIM,
mixed results regarding volatility
 Decision: to keep the current method (short-term inter-bank rate)
• Also testing the exclusion of credit default risk
 Results inconclusive, due to data limitations
 Decision: no exclusion of credit default risk
• Drafting of report for the AEG, based on written consultation
of the ISWGNA Task force
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Recommendations on treatment of
loans/deposits in different currencies
• Recommendation 1: For international trade in FISIM:
FISIM should be calculated by at least two groups of
currencies (national and foreign currency)
• Recommendation 1(bis): The reference rate for a specific
currency need not be the same for FISIM providers
resident in different economies. Although they should be
expected, under normal circumstances, to be relatively
close and so national statistics agencies are
encouraged to use partner country information
where national estimates are not available
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Recommendations on liquidity
transformation
Basic question: Which reference rate(s)?
• Single reference rate:
– Applicable for all financial intermediaries
• single observable exogenous rate
• a weighted average of observable exogenous rates of
maturities with different terms
• a weighted average of the endogenous interest rates on loans
and deposits
– Costs of funds approach (reference rate differs depending on risk
profile of the financial intermediaries
• Multiple (matched maturities) reference rates
• Alternative: vintage reference rate approach (annex 1)
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Recommendations on liquidity
transformation
Additional question: Occurrence of negative FISIM?
• Depositors are offered loss-leading products with a view to profits
being generated via borrowers (equivalent to retailers) => however,
depositors and borrowers often different, sometimes forced because
of liquidity problems
• Complementary nature of explicit and implicit charges
• Movements in FISIM because of movements in the temporal
reference rate reflect changes in the market value of loans and
deposits and not changes in FISIM
 Conclusion: Negative FISIM may be possible, but usually
something else is going on => Try to minimise, by
adopting calculation methods
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Recommendations on liquidity
transformation
• Recommendation 2: The recommendations of the Task
Force are that liquidity transformation services
should remain part of FISIM and that there should
be a single temporal reference rate used to
determine FISIM
• Recommendation 3: The calculation (definition) of
the reference rate should be determined
according to national circumstances, using any of
the following approaches:
– a reference rate based on a single observable exogenous rate for a
specific instrument, such as interbank lending rates;
– a reference rate based on a weighted average of observable exogenous
rates of maturities with different terms (weighted by the stock of loans
and deposits in each maturity); or
– a weighted average of the endogenous interest rates on loans and
deposits
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Recommendations on liquidity
transformation
• Recommendation 4: The Task Force also recommends
that during periods of volatile movements in
reference rates and when liquidity markets begin to
disfunction, considerable care should be taken in
determining FISIM estimates. These periods may be
characterised by negative FISIM estimates, particularly
for depositors, but also for borrowers. When such
incidences occur countries are encouraged to
review the applicability of the underlying
reference rate for that period to calculate FISIM
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Recommendations on credit
default risk
• Recommendation 5: The Task Force has concluded that there is
conceptual merit in excluding credit default risk from
FISIM. At present many countries will not be in a position
to do this in a way that ensures reasonable comparability
across most countries. However, a number of countries have
demonstrated that it is feasible, in their cases, to produce meaningful
results and these countries have developed plans to estimate FISIM
on this basis. The recommendation of the Task Force therefore is
that research continues in this area, both within the FISIM Task
Force and within national agencies, to develop methods and data
that can support estimation in the future. Recognising that these
improvements will take some time to materialise, the Task Force
recommends that, in the interim, in the interest of maintaining
international comparability, those countries that exclude credit
default risk from their FISIM estimates, should also
provide supplementary estimates that include credit
default risk to international agencies
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Recommendations on price and
volume measures
• Recommendation 6: The Task Force agreed that, in principle,
output indicators could be used to calculate volume
measures of FISIM (as long as double counting for explicitly
charged services was avoided), but there was an overriding
preference, not least because of simplicity, to use a
deflated stocks approach that differentiated between
the types of loans and deposits. The Task Force also
agreed that stocks of loans and deposits should be deflated
using a general price index. The Task Force further agreed
that domestic price indices should be used for exports, while
for imports the appropriate country price indices should be
used. The Task Force further recommended that the general
price index used to deflate FISIM should itself exclude FISIM
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Medium/long term research agenda
• Developing more clarity regarding FISIM(-related) references
in the SNA 2008, especially in relation to treatment of risk and
definition of financial services
• Treatment of Credit Default Risk
• Developing the ‘costs of funds’ approach and alternative
approaches (vintage reference rate)
• Look into the scope of FISIM (financial instruments and units)
• Look into possible hybrid approaches to price and volume
measurement
• The connection between the recommendations on
implementation of FISIM and the definition of income
 Agree on a new Terms of Reference
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Thank you for your attention!
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