Observed negative values for stock of financial instruments in the annual financial accounts transmissions Item 6 Eurostat Task Force on Annual Financial Accounts Frankfurt, 4 March 2016

Purpose of presentation The purpose of this presentation is to highlight where negative amounts have been recorded as stocks in AFA balances, under the ESA transmission programme (tables 6 and 7). The years 2004-2014 from the Eurostat database are taken into consideration for this analysis.

Negative stocks: the data quality issue (1) I. Logic of national accounts (ESA 2010): It can be considered that on the asset and liability sides of balance sheets, financial instruments should always be recorded with positive sign (+). Netting of financial assets and liabilities is to be avoided if possible. An exception is made for instrument AF.71 "Financial derivatives", more especially for swaps and forward rate agreement (para. 5.229, ESA 2010 ). For example when the swap has a net liability value, it should be also recorded on the asset side by convention. When swap has a net asset value - it should be also recorded on the asset side.

Negative stocks: the data quality issue (1.1) Netting may be unavoidable for financial derivatives, where separate data on transactions in assets and liabilities may not be available (ESA 2010 para. 5.31). The data extraction was made on 31 January 2016 from ESA table 720, for financial assets and liabilities. Where negative stock value appeared twice only one was kept (for example in AF.7 as well as in AF.71 for the same sub-sector).

Negative amounts reported by countries for stocks other than for AF II. Negative amounts reported by countries for stocks other than for AF.7   Eight countries Germany, Denmark, Estonia, UK, Luxembourg, Netherlands, Norway and Portugal, report negative values for stocks in assets or liabilities.. Eurostat makes additional inquiries to the countries in order to obtain clarification of their causes. In most cases negative values exist due to the fact that in the source data negative values are reported. In a few cases the data were subsequently corrected. Eurostat thanks countries for the considerable progress made in eliminating negative stock values.

Negative amounts reported by countries are shown in the Table 1 below; Negative amounts reported by countries for stocks other than for AF.7 (2.1) Negative amounts reported by countries are shown in the Table 1 below; On the other hand, Chart 1 groups the negative values of stocks in assets of Table 1 into main financial instruments.

Negative amounts reported by countries for stocks other than for AF Table 1. Negative values reported by countries for stocks, except for AF.7 (million euro)

Negative amounts reported by countries for stocks other than for AF

Negative amounts reported by countries for stocks other than for AF Significance of amounts: For example, the total recorded negative stocks of assets in 2014 amounted to 0.033% of the GDP of EU28.  The biggest amounts are for the UK for AF.89 "Other accounts receivables/ payables" and refer more probably to netting. Finally, for asset and liability the negative stock values predominantly relate to sector S.12 "Financial corporations" .

Negative amounts reported by countries for stocks of AF.7 (3) III. NEGATIVE AMOUNTS REPORTED BY COUNTRIES FOR STOCKS OF AF.7   Negative amounts reported by countries for indicator AF.7 “Financial derivatives and employee stock options” and in particular indicator AF.71 “Financial derivatives” are shown in Table 2 below. Negative stock values for AF.7 (AF.71) were recorded by 13 countries. They are predominantly in S.12 on the assets side. 

Negative amounts reported by countries for stocks of AF.7 (3.1) Table 2. Negative amounts reported by countries for stocks of AF.7

Negative amounts reported by countries for stocks of AF.7 (3.2)

Conclusions and topics for discussion (4) IV.Conclusions and topics for discussion As a general rule netting of assets and liabilities should not occur in the reported data (ESA 2010 tables), apart from AF.71 "Financial derivatives" and therefore in the total sums of AF.7 "Financial derivatives and employee stock options ". However, negative stock values are reported by countries for a variety of financial instruments. The main reason seems to be that the source data are netted.

Conclusions and topics for discussion (5) V. The TF-AFA Members are invited to: describe their views concerning possible reporting of negative values for stocks, excluding financial derivatives in the AF balance sheets. comment on the recording in their country of financial derivatives.