©Federal Statistical Office of Germany, Wolfgang Eichmann 1th Meeting of the Task Force On...

©Federal Statistical Office of Germany, Wolfgang Eichmann

1th Meeting of the Task Force

On Financial Intermediation Services Indirectly Measured (FISIM)

4-5 October 2010, Luxembourg

IV. Methodological Problems in Measuring FISIM

3. Treatment of risk in FISIM calculations

Presentation by DESTATIS Germany


CONTENT

Preliminary remark

1. State of the art (Durban)

2. Progress

3. Make or buy criterion

4. DESTATIS Proposal


Preliminary remark

FISIM attracts attention outside the National Accountants community

“The Contribution of the Financial Sector: Miracle or Mirage?” by Andrew Haldane, Simon Brennan and Vasileios Madouros.

in “The Future of Finance: The LSE report” , July 2010

Comment of The Economist July 17th 2010:

Headline: A mirage, not a miracleThe banks` contribution to the economy has been overstated

“The consequence of this approach (FISIM, W.E.) is that when interest margins rise for corporate borrowers, as they did in late 2008, the gross value added of the banking sector appears to go up. But without adjusting for risk, this measure

of the finance sectors´ economic worth is meaningless”


State of the art (Durban)

FISIM and Risk: Two camps

“Single rate”

Fixler, Reinsdorf, and Villones(USBEA) [NSO]Davies (ABS) [NSO]

“Multiple rate”Wang (Federal Reserve Bank of Boston) [CB]Hagino and Sonoda (Bank of Japan) [CB]Colangelo and Mink (ECB) [CB]Eichmann (German Federal Statistics Office, DESTATIS)

[NSO]

Source: Adelheid Burgi-Schmelz, Director, Statistics DepartmentInternational Monetary Fund, Durban 2009


Progress in the state of the art

Risk Definition ECB BEA

Currency risk Loan denominated in a foreign currency Exclude in line with SNA

Exclude in line with SNA

Debt’s (maturity-dependent)interest-rate risk or term risk),

Expectations about future course of short term rates over the lifetime of long term rates

Exclude “Risk bearing”

Include“Liquidity transformation service”

Default riskCredit risk premia

The possibility that a debtor default, by failing to repay principal and interest in a timely manner.

Exclude Exclude

Liquidity risk Liquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event causes counterparties to avoid trading with or lending to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity.

Thanks heaven we have the ECB

Thanks heaven we have the FED

Prepayment risk

Prepayment is early repayment of a loan by a borrower. To compensate for the prepayment risk (which is a reinvestment risk), prepayment penalty clause is often included into the loan contract.

At least in Germany either part of the contract with higher interest rates or prepayment penalty clause.


Make or buy criterion

If something bought from a third party

is a service => own production is on principle a service, toois a financial asset => „own production“ on principle can not be a service

default risk => credit default swaps => no serviceterm risk => interest rate swap => no service


FISIM for a 6- month and a 2- year loan

0

1

2

3

4

5

6

7

8

6 month 2 years 6 month 2 years 6 month 2 years

interest /reference rate % SNA93rev1

= SNA 93= ESA 95in this case

ECB DESTATIS

S+R

S

S

S S

S = services

1) 2)

3)

4)

5) 6)

1) + 2) = unique reference rate

3) + 4) = different reference rates

5) + 6) = fixed FISIM in % points

S+R

R+P

R+P

R+P

R+P

R = risk

P = pure interest

PP

DESTATIS Proposal (I)


Serv Serv

Service

Serv

ServServ

Risk

Bank

Serv.

DESTATIS Proposal (II)

Reference-rate

Standard Standard 2 YearsGiro

DepositsLoans

„negative Fisim“

?

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