1. Measuring the production of financial corporations Progress Report by the OECD Task Force on Financial services (Banking Services) in National Accounts OECD Meeting of National Accounts Experts Paris, 10th of October 2002

2. Labour Productivity Index, 1990 - 2000 (Basis 1990 = 100) 80 90 100 110 120 130 140 150 160 19901991199219931994199519961997199819992000 National Economy Services (excl. Financial Intermediaries) Financial Intermediaries

3. Evolution of revenues of Swiss banks, 1985-2001 Basis 1985 = 100

4. Recent changes on financial markets Enhanced role of the equity and bond markets for financial corporations New channels and institutional forms for financial services Increasing importance of intra-sectoral transactions Increased liquidity of assets and liabilities

5. Financial corporations: … all resident corporations or quasi-corporations principally engaged in financial intermediation or in auxiliary financial activities which are closely related to financial intermediation Identifying financial corporations Current treatment in the SNA93

6. Financial corporations: … all resident corporations or quasi-corporations principally engaged in financial intermediation or in auxiliary financial activities which are closely related to financial intermediation Identifying financial corporations Current treatment in the SNA93

7. Identifying financial corporations Current treatment in the SNA93 Financial Intermediation: … productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market (….).

8. Identifying financial corporations Current treatment in the SNA93 Financial Intermediation: Financial corporations …. collect funds from lenders and trans- form, or repackage, them in ways that suit the requirement of borrowers. … productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market (….).

9. Identifying financial corporations Current treatment in the SNA93 Financial Intermediation: Financial corporations …. collect funds from lenders and trans- form, or repackage, them in ways that suit the requirement of borrowers. …. A financial intermediary does not simply act as an agent for other institutional units but places itself at risk by incurring liabilities on its own account. … productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market (….).

10. Points of analysis: Identifying financial corporations Particular emphasis is put on financial intermediation

11. Points of analysis: Identifying financial corporations Particular emphasis is put on financial intermediation activity.

12. Points of analysis: Identifying financial corporations Particular emphasis is put on financial intermediation activity. Activity is characterised by features of Risk-taking andRepackaging.

13. Points of analysis: Identifying financial corporations Particular emphasis is put on financial intermediation activity. Activity is characterised by features of Risk-taking and Repackaging. General definition of financial intermediation - beyond the deposit and loan case characteristic of traditional banks.

14. Points of analysis: Identifying financial corporations Particular emphasis is put on financial intermediation activity. Activity is characterised by features of Risk-taking and Repackaging. General definition of financial intermediation - beyond the deposit and loan case characteristic of traditional banks. Yet, at the same time, ambiguity about the role of Own funds. These do not provide any financial service.

15. The changing nature of financial activities Risk management Risks involved in traditional risk management: spread over time of risks that cannot be diversified by other means Mismatch of terms acceptance of interest rate risk Extension of credit lines acceptance of counterpart risk Taking of deposits acceptance of withdrawal risk

16. The changing nature of financial activities Risk management Risks involved in traditional risk management: spread over time of risks that cannot be diversified by other means Mismatch of terms acceptance of interest rate risk Extension of credit lines acceptance of counterpart risk Taking of deposits acceptance of withdrawal risk

17. The changing nature of financial activities Risk management Features of new risk management: Strive for financial innovations Risk trading and shifting spread of risks at a given point in time among units according to their risk profile Bundling and unbundling of assets and liabilities risk-adverse units bear less risk than risk-friendly units

18. The changing nature of financial activities Risk management Strive for financial innovations Risk trading and shifting spread of risks at a given point in time among units according to their risk profile Bundling and unbundling of assets and liabilities risk-adverse units bear less risk than risk-friendly units Financial corporations are nevertheless the ultimate bearers of certain types of risks Features of new risk management:

19. The changing nature of financial activities Liquidity transformation Traditional liquidity transformation: Investors: uncertainty about time when holdings of given financial asset are modified (mainly deposits) Borrowers: uncertainty about ability to raise funding in future (mainly credits) Deposits/loans case - Typically Balance sheets Demand driven

20. The changing nature of financial activities Liquidity transformation New liquidity transformation: Arbitrage and counterpart activities, underwriting facilities Multiple interactions, short term perspective On- and off-balance sheets Market oriented

21. Financial corporations are all resident corporations or quasi- corporations principally engaged in providing financial services. The production of financial services is the result of risk management, liquidity transformation and/or auxiliary financial activities. Identifying financial corporations A working definition...

22. Financial corporations are all resident corporations or quasi- corporations principally engaged in providing financial services. The production of financial services is the result of risk management, liquidity transformation and/or auxiliary financial activities. Identifying financial corporations A working definition...

23. Financial corporations are all resident corporations or quasi- corporations principally engaged in providing financial services. The production of financial services is the result of risk management, liquidity transformation and/or auxiliary financial activities. Identifying financial corporations A working definition...

24. Risk management and liquidity transformation are productive activities in which an institutional unit incurs financial liabilities for the purpose of acquiring mainly financial assets. Corpo- rations engaged in these activities obtain funds, not only by taking deposits but also by issuing bills, bonds or other securities. They use these as well as own funds to acquire mainly financial assets by making advances or loans to others but also by purchasing bills, bonds or other securities. Identifying financial corporations A working definition (continued):

25. Risk management and liquidity transformation are productive activities in which an institutional unit incurs financial liabilities for the purpose of acquiring mainly financial assets. Corpo- rations engaged in these activities obtain funds, not only by taking deposits but also by issuing bills, bonds or other securities. They use these as well as own funds to acquire mainly financial assets by making advances or loans to others but also by purchasing bills, bonds or other securities. Identifying financial corporations A working definition (continued):

26. Risk management and liquidity transformation are productive activities in which an institutional unit incurs financial liabilities for the purpose of acquiring mainly financial assets. Corpo- rations engaged in these activities obtain funds, not only by taking deposits but also by issuing bills, bonds or other securities. They use these as well as own funds to acquire mainly financial assets by making advances or loans to others but also by purchasing bills, bonds or other securities. Identifying financial corporations A working definition (continued):

27. Should financial corporations be identified via the services they provide, as suggested in the working definition? Identifying financial corporations Issues for discussion Do Risk management, Liquidity transformation and Auxiliary financial activities properly capture core activities of financial corporations? Does the group support the proposal of the task force to include own funds as a source for the provision of financial services?