1. 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015 Session 5: Money and Finance in the SNA Discussant: Gabriel Quirós Head of Division Macroeconomic Statistics European Central Bank

2. Rubric www.ecb.europa.eu © Introduction  Financial sector has expanded much faster than any other activity in last 20 years New instruments New agents New markets Globalisation and electronic markets  SNA aspires to give a complete picture from farming and fishing to derivatives!  Is it possible? Is it necessary? consistency: possible, necessary completeness: necessary and desirable; possible (?) detailed system: desirable (?); neither necessary nor possible  SNA not only for “experts” Limits to communicate it A consistent, understandable framework for economic analysis better than a for complex, too heavy system, and unnecessarily detailed Two papers:  Dominique Durant (Banque de France), Kyle Hood (U.S. Bureau of Economic Analysis) and Leonard Nakamura (Philadelphia Federal Reserve Bank), Marshall Reinsdorf (IMF), "Towards Completing the Picture of Financial Activity in National Accounts"  Bo Bergman (No affiliation, formerly at Statistics Sweden)  Both papers emphasize the need for a correct recording of holding gains of losses. 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA 2

3. Rubric www.ecb.europa.eu © Paper by Dominique Durant (Banque de France), Kyle Hood (U.S. Bureau of Economic Analysis) and Leonard Nakamura (Philadelphia Federal Reserve Bank), Marshall Reinsdorf (IMF) Concrete proposals for how national accounts can provide more complete information related to holding gains and to losses from default Advocate for supplementary information/ tables/ indicators: different concepts needed for different questions Holding Gains SNA treatment of holding gains can’t be changed, but we can show income + holding gains as a supplementary concept, and we can correctly account for services paid for by price changes that look like holding gains 3 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA

4. Rubric www.ecb.europa.eu © Retained Earnings of Corporations 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA. 4 Reinvested earnings are treated as saving of corporations in the SNA except for FDI Passing through RE to shareholders who reinvest them changes the explanation of much of the long run growth in wealth from holding gains to saving A supplementary split of economy into public sector and private corporations should be shown (?) Income of Lenders with Provision for Losses from Default Interest used to cover default losses is not available to pay for services, so should exclude from borrower FISIM (in core accounts) Meaningful measure of income of lender would also net out a provision for expected losses

5. Rubric www.ecb.europa.eu © Paper by Bo Bergman (No affiliation, formerly at Statistics Sweden) Banks’ total assets. Percent of GDP. 1950-2013 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA 5  What about shadow banking?

6. Rubric www.ecb.europa.eu © “Financial/ liability approach” in the paper: 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA. 6 Valuing non-financial assets from the liabiliy side (stock exchange, house prices) (?) Notional corporate units are introduced (?) Total nonfinancial capital at market value can be derived as a residual.. and national wealth as government plus household wealth

7. Rubric www.ecb.europa.eu ©2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA 7 Ownership, risks Institutional units and sectors.  Final owners, intermediate owners Income and holding gains –debated concepts  Central topics:  Suggestions in the paper: National wealth financially compiled is permanently lower than if real assets are PIM calculated. Tobins Q is < 1 Holding gains, the most important component for wealth accumulation. …must be considered even if they do not directly derive from production

8. Rubric www.ecb.europa.eu © My additional comments 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA 8 1. Dominique Durant (Banque de France), Kyle Hood (U.S. Bureau of Economic Analysis) and Leonard Nakamura (Philadelphia Federal Reserve Bank), Marshall Reinsdorf (IMF), "Towards Completing the Picture of Financial Activity in National Accounts"  Disposable income plus holding gains also discussed in Bo’s paper, and on SNA research agenda on page 2, convincing reasoning why “changing definition of income to include holding gains is not an option”, but rather a call for supplementary measures (which could indeed be useful) Important details in Section IB: there are cases where financial services producing income may easily be mistaken for holding gains.

9. Rubric www.ecb.europa.eu ©2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA 9  No savings for corporations: Extend current FDI treatment to most/all retained earnings and reroute them always to shareholders Conceptually sound, but could add yet another complexity in the national accounts that make key figures (income) less understandable for broader public The section with the example for France shows that implementation is not straightforward, e.g. “look through” for investment funds needed (but with Security Holdings Statistics this should become more feasible).  Bad debt losses  I welcome that the FISIM topic stays on the SNA research agenda, also given that national methods are still not fully comparable  Usefulness of supplementary SNA measures and tables. But, not to overburden compilers and users. From the issues discussed here, the first (holding gains) seems to me the most important case.

10. Rubric www.ecb.europa.eu © My additional comments 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA 10 2. Bo Bergman (No affiliation, formerly at Statistics Sweden)  Key message: Balance sheets and level data should receive more attention. Definitely right! The paper leaves open options, good food for thought, less specific proposals  “Corporations do not have net worth as this should belong to the final owners of the corporations”: how to distribute it to the HH and Government sector is not mentioned(?): NFCs often have a negative net worth, because “net assets < market value of equity issued” This reflects that shareholders value the company as a whole higher than the sum its (net) assets The net worth that arises, it is already allocated to the shareholders, via the high market valuation of the shares they hold SNA is somewhat confusing on this point, c.f. para 13.88  An extended corporate sector, which includes HH and Gov as notional units holding real assets. In the HH and GG balance sheet the real assets are replaced by financial claims against the extended corporation sector: What does this imply for the analysis of household wealth, for analysis of the corporation sector (e.g. its indebtedness), or when making comparisons to non-financial accounts ? ? Not convinced that the valuation proposed of non-financial assets is better than an independent estimate of non-financial assets, but it may be a cross check.

11. Rubric www.ecb.europa.eu © Consistency/ Completeness/ Detail Are there trade-offs? 2015 IARIW-OECD Conference: ”W(h)ither the SNA?” April 16-17, 2015, Session 5: Money and Finance in the SNA 11 SNA Money and Finance COMPLETENESS DETAIL? CONSISTENCY! FINAL REMARKS