2. Content
Background: debt measures through the prism of financial accounts
Brief overview of the financial accounts
Financial accounts at a glance
Private debt: instruments and sources
Private debt definitions / measures
A broad definition: the MIP scoreboard
A possible alternative narrow definition
Leverage duplication: inter-company loans
Leverage duplication: FDI loans and deposits operations
Broad and narrow debt comparison
Conclusion

3. Financial Accounts exhaustively provide for the economy:
Background: debt measures through the prism of financial accounts
Financial Accounts exhaustively provide for the economy:
stocks i.e. financial balance sheet positions
and transactions in financial assets
as well as holding gains and losses (valuation changes in price and
exchange rate)
and other changes in volume
Broken down by institutional sectors...
... and financial instruments

4. Background: debt measures through the prism of financial accounts
Complete description of financial developments broken down by institutional sectors
S1415
S11
S13
Households & NPISH
Non-Financial Corporations
General Government
Non-Financial Sectors
S12K
S12P
S125
Monetary & Financial Institutions
Other Financial Institutions
Insurance Corporations & Pension Funds
Financial Corporations S2
Rest of the World
Relations with the RoW

5. Financial derivatives
Background: debt measures through the prism of financial accounts
Complete description of financial developments covering all financial instruments F1
Monetary gold & Special drawing rights F2
Currency and deposits (Transferable deposits ; Other Deposits) F3
Securities other than shares (Short term ; Long term)
Financial derivatives F4
Loans (Short term ; Long term) F5
Shares and other equity (Quoted shares ; Unquoted shares ; Other equity)
Mutual funds shares (monetary funds ; non monetary funds) F6
Insurance technical reserves (net equity of HH in life insurance and in pension funds reserves) F7
Other accounts receivable/payable (Trade credits and advances)

6. Background: debt measures through the prism of financial accounts
Private debt

7. Background: debt measures through the prism of financial accounts
Private sector debt: instruments and sources

8. Private debt definitions / measures
A broad definition: the MIP scoreboard
Legislation: MIP is part of the 'six-pack' of legislative acts to strengthen the surveillance of economic fiscal policies
Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances
Definition of the “private sector debt” indicator
non financial corporations+households and non-profit institutions serving households
loans+securities other than shares (liabilities, unconsolidated)
Alert Mechanism Report (12 February 2012)
In-Depth Reviews (beginning of June 2012)
Excessive Imbalance Procedure assessment

9. Private debt definitions / measures
An alternative narrow definition
Same institutional sectors (NFC+households and NPISH)
Still securities other than shares
But a narrower loan’s perimeter (rather close to MFI loans)
Exclusion of loans within NFC (consolidation)
Netting out of FDI operations included in loans, i.e. loans and deposits between resident entities and their non- resident affiliates (or taking their amounts compiled according to the extended directional principle => sort of consolidation for ROW sector)
Why: duplication of their amounts therefore departing from the initial leverage (leverage duplication)

10. Leverage duplication: inter-company loans
Simple example with T accounts : case 1
Simple example with T accounts : case 2

11. Leverage duplication: inter-company loans
Case 1 : S11 balance sheet in financial accounts
Case 2 : S11 balance sheet in financial accounts

12. Sources: Banque de France / Insee (ESANE-SIE)
Leverage duplication: inter-company loans
For France : inter-company loans around 20% of GDP in 2011
Sources: Banque de France / Insee (ESANE-SIE)

13. In Balance of Payments transactions recorded either:
Leverage duplication: FDI loans and deposits operations
Loans and deposits between resident entities and their non-resident affiliates part of FDI operations
Recorded in loans in national accounts (asset for outward FDI, liability for inward FDI)
In Balance of Payments transactions recorded either:
under the asset/liability (AL) principle
recently under the extended directional (ED) principle
Multiplication of SPEs created by multinational groups inflating amounts of intercompany loans between fellow companies if recorded under the AL principle

14. Leverage duplication: FDI loans and deposits operations
Round tripping example : capital transferred from one affiliate to another, non-resident, affiliate and then returned, in part or in whole, directly or indirectly, to the original or another entity
Ultimate Controlling Parent A, B,C and D fellow companies
Under the AL principle an inter-company loan of +100 from A to B recorded as an asset in national accounts
Under the AL principle an inter-company loans of +100 from B to A recorded as a liability in national accounts
Under the ED principle, both transactions netted out (+100 and -100 in inward or outward FDI depending on the residency of the UCP

15. Source: Banque de France - BoP
Leverage duplication: FDI loans and deposits operations
For France : inward FDI inter-company loans around 14% of GDP in 2011
Source: Banque de France - BoP

16. Source: Banque de France
Broad and narrow debt measures comparison
For France : differences between the broad and the narrow debt measures
Source: Banque de France

17. Conclusion
Possible major impact of technical choices underlying the construction of private indebtedness ratios => on the macro economic assessment at the country level
The “devil is in the details” applies also for statistical measurement…
…therefore, apparently simple, “blind” solutions can be misleading…
…further work seems both necessary and urgent at the international level in the field of private debt measurement

18. How reliable and comparable are private debt measures: the French case
Thank you for your attention