Classification of Financial Instruments

1993 SNA Chapter 11

MFSM Chapter 4

Background

• Review undertaken for BPM update.• Decisions are the result of consultation with

compilers and users:•Requests for additional detail. •Developments in financial markets and analysis.

• Desire to bring BPM5 more fully into line with other manuals on detail and terminology.

• Compatible with existing SNA (changes only in presentation and detail).•but wish to advise AEG; some could be taken up

in SNA.

1993 SNA/MFSM ClassificationF.1 Monetary gold and SDRsF.2 Currency and deposits Currency Deposits

Transferable deposits Other depositsF.3 Securities other than sharesF.4 LoansF.5 Shares and other equityF.6 Insurance technical reserves Net equity of households in life insurance reserves Net equity of households in pension funds Prepayment of premiums and reserves against outstanding claimsF.7 Financial derivatives [ADDED IN 2000]F.8 Other accounts receivable/payable Trade credit and advances Other

Question 1 – Broad Outline of Classification

Interest in DEBT INSTRUMENTS as a grouping.Major and growing area of economic analysis (debt has different implications for financial soundness and vulnerability; “balance sheet approach”).

BPM5 already uses equity/debt/other grouping.

Strong and increasing analytical interest in debt as an grouping.

• Publication of External Debt Guide in 2003; link to total and domestic debt would be useful.

Possibility to introduce debt concept explicitly in the SNA?• Already implicit.• Include definition?; Show as an “of which” item under

Total Financial Assets/Liabilities in the SNA instruments classification?

• If so, any comments on specific instruments to be included under debt and other headings?

Question 1 – Broad Outline of Classification

Securities other than shares (1993 SNA term) Debt securities (BPM5 term)

Some financial derivatives are securities, so the 1993 term became inaccurate after the exclusion of financial derivatives in 2000.“Other” is not informative.No mention of debt, although these instruments all involve debt.

Question 1 – Broad Outline of Classification

Links between instrument and corresponding type of income:

• Useful for rate of return analysis.• Shows link between balance sheets and income

parts of accounts.

See table in issues paper.• Note: SNA version would be different.

Presentational, no change in substance. Possibly useful in SNA?

• Just a suggestion.

Question 2 – Shares and other equity:Possible additional components

Mutual funds as a standard or supplementary item under shares and other equity or separately?

Different role in financial process to the rest of equity because they have an intermediary role.More like other collective investment schemes (pensions and life insurance) which are already shown as separate instruments.Rapid growth in recent years.

A supplementary item is used here to cover an item that is defined and discussed in the manual, but that is voluntary, to be included, or not, according to national circumstances.

Question 2 – Shares and other equity:Possible additional components

Money market mutual funds (MMMF) as standard or supplementary item?

Role in monetary statistics•Although equity, highly liquid and

included in money supply.

Question 2 – Shares and other equity:Possible additional components

Any other issues?

Question 3 Financial derivatives: Possible additional components

Interest in additional information on a supplementary basis.Possibly classified by instrument type:

Forwards (including, e.g., futures and swaps)Options

Possibly classified by underlying risk category:Interest-generating (deposits, loans, debt securities)EquitiesMoney market and other investment funds shares/unitsOther financial unitsCommodities

Question 4 Other

Trade-related credit as supplementary item:

trade credit (credit from the seller) is already identified separately.trade-related credit (credit from an associated entity or government) is not.

Any other changes?

Additional issues

There are additional papers on some specific financial instrument classification issues, which are dealt with in separate papers:

Reverse transactions;Traded loans - whether and when they should be reclassified as securities; Loans and deposits – the borderline between them; andNonmonetary gold and/or gold accounts – whether and when these are financial assets.