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An enhanced methodology of compiling financial intermediation services indirectly measured (FISIM)

An enhanced methodology of compiling financial intermediation services indirectly measured (FISIM). Reimund Mink Paris, 14 October 2008. Outline. Background FISIM in international statistical standards An enhanced methodology for FISIM Estimates based on an enhanced methodology for FISIM

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An enhanced methodology of compiling financial intermediation services indirectly measured (FISIM)

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  1. An enhanced methodology of compiling financial intermediation services indirectly measured (FISIM) Reimund Mink Paris, 14 October 2008

  2. Outline • Background • FISIM in international statistical standards • An enhanced methodology for FISIM • Estimates based on an enhanced methodology for FISIM • Way forward

  3. Background • Discussions of an appropriate method to compile FISIM in the context of the SNAupdate and of the ESA revision • Concerns have arisen from the financialmarket turmoil, but the shortcomings of the current framework are more general • ECB research project launched in 2007 • Discussion of an ECB issue paper at the Committee of Monetary, Financial and Balance of Payments Statistics (CMFB) meeting in July 2008

  4. FISIM in international statistical standards • Within the framework of international statistical standards: • FISIM should be compiled on the basis of the difference between market interest rates on loans and deposits and a reference rate as a rate between bank interest rates on deposits and loans. • The reference rate should contain no service element and reflect the risk and maturity structure of deposits and loans • The rate prevailing for inter-bank borrowing and lending may be a suitable choice • Different reference rates may be needed for each currency in which loans and deposits are denominated • This approach is reflected in the 2008 SNA (particularly paragraphs 6.123 to 6.169)and in the new draftESAchapter on FISIM.

  5. An enhanced methodology (1/3) The conceptual framework: the case of deposits In view of deposit insurance (no default risk !), the alternative to hold money in a deposit is buying a risk-free debt security The value of the services received is: YD= (rM – rD) * SD = (rF + rT – rD) * SD = mD * SD where YD, SD, rD and mD represent the output, the stocks, the interest rate and the margin on deposits D, andrM is the yield of a debt security with similar characteristics( = short-term risk-free rate rF + term premium rT)

  6. An enhanced methodology (2/3) The conceptual framework: the case of loans The alternative to apply for a loan is issuing a debt security. The value of the services received is YL= (rL – rM)* SL = (rL – (rF + rT + rP)) * SL = mL * SL where YL, SL, rL and mL represent the output, the stocks, the interest rate and the margin on loan L, and rM is the yield of a debt security with similar (risk) characteristics (= short-term risk-free rate rF + term premium rT + credit default risk premium rP)

  7. An enhanced methodology (3/3) Two different approaches are distinguished: • Term premium adjustment only (I) Output Y = YD + YL(excluding term premium rT) • Credit default risk and term premium adjustment (II) Output Y = YD + YL (excluding credit default risk premium rP and term premium rT) • The results are compared to estimates based on the currently proposed methodology(for the time being, only for deposit-taking institutions)

  8. New FISIM estimates Both approaches show lower FISIM than the currently proposed methodology • The adjustments account on the average • for 24% (approach 1) (excluding term premium rT); and • for 43% (approach II) (excluding credit default risk premium rP and term premium rT) of the estimates based on the currently proposed methodology • The variability of the estimated margins is much lower than under the current methodology

  9. Way forward • The CMFB agreed that the current method as reflected in the international statistical standards offers room for improvement • A Task Force on FISIM will be launched in the EU in July 2009 and will report to the CMFB in early 2012 • This means that a proposed solution can be implemented with the new ESA in 2014 • The Task Force will address conceptual and practical aspects related to FISIM • Furthermore, a workshop is planned for end-March 2009 allowing to already share national practices in preparation for the Task Force

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