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)
160
150
National Economy
Services (excl. Financial Intermediaries)
140
Financial Intermediaries
130
120
110
100
90
80
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Evolution of revenues of Swiss banks, 1985-2001
Basis 1985 = 100
800
Revenues from
t rading in
securit ies
700
600
500
400
300
200
T ot al revenues
100
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
19
85
0
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
Identifying financial corporations
Current treatment in the SNA93
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 corporations
Current treatment in the SNA93
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 corporations
Current 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 (….)”.
Identifying financial corporations
Current 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 transform, or repackage, them in ways that suit the requirement of
borrowers”.
Identifying financial corporations
Current 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 transform, 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”.
Identifying financial corporations
Points of analysis:
• Particular emphasis is put on financial intermediation
Identifying financial corporations
Points of analysis:
• Particular emphasis is put on financial intermediation  activity.
Identifying financial corporations
Points of analysis:
• Particular emphasis is put on financial intermediation  activity.
• Activity is characterised by features of “Risk-taking” and
“Repackaging”.
Identifying financial corporations
Points of analysis:
• Particular emphasis is put on financial intermediation  activity.
• Activity is characterised by features of “Risk-taking” and
“Repackaging”.
• General definition of financial intermediation - beyond the
deposit and loan case characteristic of traditional banks.
Identifying financial corporations
Points of analysis:
• Particular emphasis is put on financial intermediation  activity.
• Activity is characterised by features of “Risk-taking” and
“Repackaging”.
• 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 activities
Risk management
Risks involved in “traditional” risk management:
• Extension of credit lines  acceptance of counterpart risk
• Taking of deposits  acceptance of withdrawal risk
• Mismatch of terms  acceptance of interest rate risk
 spread over time of risks that cannot
be diversified by other means
The changing nature of financial activities
Risk management
Risks involved in “traditional” risk management:
• Extension of credit lines  acceptance of counterpart risk
• Taking of deposits  acceptance of withdrawal risk
• Mismatch of terms  acceptance of interest rate risk
 spread over time of risks that cannot
be diversified by other means
The changing nature of financial activities
Risk management
Features of “new” risk management:
• Strive for financial innovations
 Bundling and unbundling of assets and liabilities
• Risk trading and shifting
 risk-adverse units bear less risk than risk-friendly units
 spread of risks at a given point in time
among units according to their risk profile
The changing nature of financial activities
Risk management
Features of “new” risk management:
• Strive for financial innovations
 Bundling and unbundling of assets and liabilities
• Risk trading and shifting
 risk-adverse units bear less risk than risk-friendly units
 spread of risks at a given point in time
among units according to their risk profile
• Financial corporations are nevertheless the ultimate bearers
of certain types of risks
The changing nature of financial activities
Liquidity 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 activities
Liquidity transformation
“New” liquidity transformation:
• Arbitrage and counterpart activities, underwriting facilities
• Multiple interactions, short term perspective
 On- and off-balance sheets
“Market oriented”
Identifying financial corporations
A working definition ...
“ Financial corporations are all resident corporations or quasicorporations principally engaged in providing financial
services. The production of financial services is the result of
risk management, liquidity transformation and/or auxiliary
financial activities”.
Identifying financial corporations
A working definition ...
“ Financial corporations are all resident corporations or quasicorporations principally engaged in providing financial
services. The production of financial services is the result of
risk management, liquidity transformation and/or auxiliary
financial activities”.
Identifying financial corporations
A working definition ...
“ Financial corporations are all resident corporations or quasicorporations principally engaged in providing financial
services. The production of financial services is the result of
risk management, liquidity transformation and/or auxiliary
financial activities”.
Identifying financial corporations
A working definition (continued):
“ Risk management and liquidity transformation are productive
activities in which an institutional unit incurs financial liabilities
for the purpose of acquiring mainly financial assets. Corporations 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”.
Identifying financial corporations
A working definition (continued):
“ Risk management and liquidity transformation are productive
activities in which an institutional unit incurs financial liabilities
for the purpose of acquiring mainly financial assets. Corporations 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”.
Identifying financial corporations
A working definition (continued):
“ Risk management and liquidity transformation are productive
activities in which an institutional unit incurs financial liabilities
for the purpose of acquiring mainly financial assets. Corporations 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”.
Identifying financial corporations
Issues for discussion
• Should financial corporations be identified via the services
they provide, as suggested in the working definition?
• 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?