1. Geoffrey LEFEBVRE (INSEE) FISIM Task Force – 5 October 2010 Price-volume split for financial intermediation services

2. Page 2 FISIM task Force G Lefebvre5 October 2010 I.Treatment of FISIM in the ESA 1995 II.Evolution of FISIM in volume III.FISIM price index and reference rate IV.Impact on GDP growth and GDP deflator Price-volume split for financial intermediation services

3. Page 3 FISIM task Force G Lefebvre5 October 2010 I.Treatment of FISIM in the ESA 1995 II.Evolution of FISIM in volume III.FISIM price index and reference rate IV.Impact on GDP growth and GDP deflator Price-volume split for financial intermediation services

4. Page 4 FISIM task Force G Lefebvre5 October 2010 Treatment of FISIM in the ESA 1995 › The SIFIM at constant prices calculation uses › The prices structure of the previous year (chained prices, base 2000) › A general prices index (the GDP deflator in the case of French national accounts)

5. Page 5 FISIM task Force G Lefebvre5 October 2010 Treatment of FISIM in the ESA 1995 › FISIM volume = " real " stocks of loans and deposits deflated by GDP deflator, chained prices › FISIM price = difference between interest rates corrected by GDP deflator

6. Page 6 FISIM task Force G Lefebvre5 October 2010 Treatment of FISIM in the ESA 1995 Sources : Banque de France, French national accounts

7. Page 7 FISIM task Force G Lefebvre5 October 2010 Caracteristics of the French banking system › Stocks of loans and deposits remain quite steady, except mortgage loans. › There are almost no interests paid on deposits except for a few saving-accounts (passbook accounts such as livret A, B, CEL, PEL,…) with a low interest rate  There is a s trong correlation between the margin on deposits and the reference rate › Most borrowers prefer a fixed rate for long-term loan  The effective rate for long-term loan is steadier and is not directly linked to the reference rate  There is a negative correlation between the price of FISIM on deposits and loans

8. Page 8 FISIM task Force G Lefebvre5 October 2010 I.Treatment of FISIM in the ESA 1995 II.Evolution of FISIM in volume III.FISIM price index and reference rate IV.Impact on GDP growth and GDP deflator Price-volume split for financial intermediation services

9. Page 9 FISIM task Force G Lefebvre5 October 2010 Evolution of FISIM in volume › A smooth evolution of loans and deposit nominal stocks Sources : Banque de France, French national accounts

10. Page 10 FISIM task Force G Lefebvre5 October 2010 Evolution of FISIM in volume › Nominal stocks of loans and deposits decelerated in connection with lower inflation rates Sources : Banque de France, French national accounts

11. Page 11 FISIM task Force G Lefebvre5 October 2010 Evolution of FISIM in volume › FISIM on loans are steady on the long term and depends mostly on the economic cycles Sources : Banque de France, French national accounts

12. Page 12 FISIM task Force G Lefebvre5 October 2010 Evolution of FISIM in volume › Breakdown of FISIM growth Sources : Banque de France, French national accounts Post-crisis savings

13. Page 13 FISIM task Force G Lefebvre5 October 2010 I.Treatment of FISIM in the ESA 1995 II.Evolution of FISIM in volume III.FISIM price index and reference rate IV.Impact on GDP growth and GDP deflator Price-volume split for financial intermediation services

14. Page 14 FISIM task Force G Lefebvre5 October 2010 FISIM price index and reference rate › Interest rates on loans are linked to the Repo rate  Margin on loans are relatively steady › The margin on deposits is highly correlated with the reference rate Sources : Banque de France, French national accounts

15. Page 15 FISIM task Force G Lefebvre5 October 2010 FISIM price index and reference rate Sources : Banque de France, French national accounts

16. Page 16 FISIM task Force G Lefebvre5 October 2010 FISIM price index and reference rate › Since the decrease of interest rates and because of fast variation, margins on loans and deposits present a high variance › The 2008-2009 financial crisis had an important impact on the margin on loans Sources : Banque de France, French national accounts

17. Page 17 FISIM task Force G Lefebvre5 October 2010 FISIM price index and reference rate › The GDP deflator has almost no impact on FISIM price Sources : Banque de France, French national accounts

18. Page 18 FISIM task Force G Lefebvre5 October 2010 FISIM price index and reference rate › Analysis of the FISIM price growth rate (loans) Sources : Banque de France, French national accounts

19. Page 19 FISIM task Force G Lefebvre5 October 2010 FISIM price index and reference rate › Analysis of the FISIM price growth rate (deposits) Sources : Banque de France, French national accounts

20. Page 20 FISIM task Force G Lefebvre5 October 2010 FISIM price index and reference rate › The price of households final consumption expenditure of FISIM depends clearly on the reference rate –Importance of FISIM on deposits Sources : Banque de France, French national accounts

21. Page 21 FISIM task Force G Lefebvre5 October 2010 I.Treatment of FISIM in the ESA 1995 II.Evolution of FISIM in volume III.FISIM price index and reference rate IV.Impact on GDP growth and GDP deflator Price-volume split for financial intermediation services

22. Page 22 FISIM task Force G Lefebvre5 October 2010 Impact on GDP growth and GDP deflator › Evolutions of volumes is smoother Sources : Banque de France, French national accounts

23. Page 23 FISIM task Force G Lefebvre5 October 2010 Impact on GDP growth and GDP deflator › The variation of FISIM nominal growth comes from a price effect Sources : Banque de France, French national accounts

24. Page 24 FISIM task Force G Lefebvre5 October 2010 Impact on GDP growth and GDP deflator › FISIM has a strong impact on final consumption expenditure price for households… Sources : Banque de France, French national accounts

25. Page 25 FISIM task Force G Lefebvre5 October 2010 Impact on GDP growth and GDP deflator Sources : Banque de France, French national accounts › … but almost no impact on their purchasing power.

26. Page 26 FISIM task Force G Lefebvre5 October 2010 Impact on GDP growth and GDP deflator Sources : Banque de France, French national accounts › FISIM has an impact on the GDP growth…

27. Page 27 FISIM task Force G Lefebvre5 October 2010 Impact on GDP growth and GDP deflator Sources : Banque de France, French national accounts › But only on the GDP deflator. There is only a small volume effect.

28. Page 28 FISIM task Force G Lefebvre5 October 2010 Impact on GDP growth and GDP deflator Sources : Banque de France, French national accounts

29. Page 29 FISIM task Force G Lefebvre5 October 2010 Conclusion › In the case of French national accounts, FISIM analysis is complex for practical purposes. › But FISIM match business cycles and FISIM variations are meaningful. › FISIM impact on GDP at chained-volume measures and on households purchasing power remains limited.