1. Some remarks on the comments made by the Bank of England
The statistical treatment of financial vehicle corporations in the draft 1993 SNA Rev1
Some remarks on the comments made by the Bank of England
Reimund Mink
OECD Working Group on Financial Statistics, Paris, 2-3 October 2007

2. The comments made by the Bank of England
The note by Chris Wright and Michael Lyon questions the proposed universal designation of special purpose entities (SPEs) established for the securitisation of assets as separate institutional units. *)
Such a universal designation of FVCs as institutional units is indicated in paragraph 4.48 of the draft 1993 SNA Rev1 chapter 4.
Main arguments of the Bank of England (BoE) to treat FVCs not as institutional units are that such entities lack
Autonomy of action; and
The degree of risk separation implied by this status.
The BoE recommends that the recording of FVCs as artificial subsidiaries and as an integral part of the parent corporation often appears as more appropriate (such entities are described in paragraphs 4.52 to 4.54.
*) Financial vehicle corporations (FVCs) in ESCB terminology.

3. A few remarks (1) The note rightly refers to some important issues
The designation of FVCs is of particular analytical interest due to the consequences for the calculation of monetary aggregates; and
Further debate on definitional issues relating to monetary aggregates is warranted.
However, the question arises whether the 1993 SNA Rev1 text should be redrafted in a way which can readily accommodate the diversity of structures used for this type of operation.
The proposal allowing national compilers to record FVCs in a flexible way (either consolidate stocks and flows of FVCs - if seen as artificial subsidiaries - with the corresponding stocks and flows of MFIs or of other financial corporations or treat FVCs as separate institutional units)
Disturbs consistency and international comparability of data; and
Means that the same procedure has to be applied for other entities (e.g. holdings, conduits, investment funds, pension funds, etc.). The note does not address this issue.

4. A few remarks (II)
The note also raises the issue of the consistency between the 1993 SNA Rev1 and international accounting standards (IAS). It suggests that some FVCs in the IAS are considered as part of their parent corporation (originator) if the risks and rewards are retained by the originator.
However, paragraph 14 of the note refers at least partly to consolidated statements (as described in the draft IMF MFS Compilation Guide, paragraph 3.157), while the SNA generally recommends the compilation of non-consolidated accounts.
It would be more meaningful to refer to individual accounts of corporations, where (as mentioned in paragraph 14) SPEs are treated as separate from their parent corporation.

5. A few remarks (III)
Both, the 1993 SNA (paragraph 4.2) and the 1995 ESA (paragraph 2.12) consider the criterion of autonomy of decision for identifying “institutional units”, but…
Exceptions are acknowledged: “Entities forming part of a group of units engaged in production and keeping a complete set of accounts are deemed to be institutional units even if they have partially surrendered their autonomy of decision to the central body (the holding corporation) responsible for the general direction of the group […]”a (1995 ESA, paragraph 2.13/e).
However, autonomy of decision is not the only criterion to identify entities as separate institutional units.

6. A few remarks (IV)
Paragraph 4.19 of the draft BPM6 (version of March 2007) states that:
i) Legal entities that are residents of different national economies are never combined; and
ii) A legal entity is always an institutional unit if at least one of its owners is resident in a different national economy.
Only if a (resident) entity is completely owned by a resident unit it is treated as an artificial subsidiary, and therefore, not as a separate institutional unit.

7. Some conclusions
Within the ESCB statistical framework, FVCs are part of the OFI sub-sector (S.123 as one of the money holding sectors) and not MFIs (S.121 and S.122 as the money issuing sector).
The ECB is developing an integrated approach to collect and compile data on MFI loan securitisations and on FVC balance sheet statistics that will help to shed light on the impact of securitisation on monetary aggregates and their counterparts.
If FVCs would not be distinguished from MFIs, significant implications for the definition of the money holding and issuing sectors, of monetary aggregates and of their counterparts will arise.
The treatment of FVCs as artificial subsidiaries may imply reassessing the treatment of other entities (investment funds, holdings).
Further work on this issue needs to be done – taking into consideration the consistency of data for the various institutional sectors like MFIs, other financial corporations or the rest of the world (monetary, financial and BOP/IIP statistics).
It might also be necessary to clarify, in paragraph 4.52 that artificial subsidiaries do not cover units mentioned in the paragraphs 4.48 to Such artificial subsidiaries, as described in paragraphs 4.52 to 4.54 are resident entities which are wholly owned by a resident unit (or a group of resident units).