1. FISIM: Current Research at Statistics Canada October 4th and 5th, 2010 Eurostat Task Force on FISIM Jim Tebrake – Statistics Canada

2. 17/12/2015 Statistique Canada Statistics Canada 2 FISIM – Current Research  The Canadian System of National Accounts is currently being revised to align with SNA 2008. Revised data will be released June 2012.  One of major revisions includes a change in how we measure and allocate FISIM.  Status of our research: Problems with the current methodology An alternative method for allocating FISIM Data Sources

3. 17/12/2015 Statistique Canada Statistics Canada 3 Current Methodology 1. Within the CSNA “Global FISIM” is defined as the difference between Property income receivable and interest payable. This includes FSIM from own-funds. 2. In the case of interest received from own-funds, we only want to include the service fee in our measure of FISIM. In order to do this we need to remove the ‘pure rate of interest measure – SNA Interest’ from the value of global FISIM calculated above.

4. 17/12/2015 Statistique Canada Statistics Canada 4 Current Methodology (continued) 3. Net FISIM = Global FISIM minus the own-funds adjustment 4. The FISIM estimates are then distributed into a depositors portion and a borrowers portion, representing the service provided to both types of transactors. This distribution is carried out for each type of financial institution using their respective outstanding loans and deposits with the exception of sales financing companies where a margin approach is used directly

5. 17/12/2015 Statistique Canada Statistics Canada 5 Current Methodology (continued) 6. The depositors portion is further divided into the following CSNA sectors using the assets of each sector (or liabilities from the financial sector’s perspective). 7. For lenders, a fixed margin is applied to short, medium and long-term loans to derive an estimate of FISIM for the financial institution. This is compared to the net FISIM for loans and the difference is prorated to the different loan categories

6. 17/12/2015 Statistique Canada Statistics Canada 6 Current Methodology - Shortcomings  There are three major shortcomings with the CSNA approach: It assumes that the service margin is equal for both loans and deposits. It assumes that the service margin attributable to depositors is the same, regardless of the sector. The fixed margin, used in the calculation of loan FISIM by sector, assumes the same service fee across loan types and through time.

7. 17/12/2015 Statistique Canada Statistics Canada 7 Alternative Method 1. Global FISIM is defined as the difference between Property income receivable and interest payable as per the current methodology 2. An own-funds adjustment is still required, but rather than using a mid-point reference rate as in the current CSNA methodology, a series of reference rates for various loan and deposit types and terms to maturity would be computed.

8. 17/12/2015 Statistique Canada Statistics Canada 8 Alternative Method 3. Net FISIM = Global FISIM minus the own-funds adjustment

9. 17/12/2015 Statistique Canada Statistics Canada 9 Alernative Method 4. Independent of the measure of net FISIM, a value of FISIM is calculated for individual loan types and terms to maturity.  This is done by calculating an effective interest rate based on the interest revenue received over the corresponding average loan balances, for a given period, for individual loan types and maturities.  A reference rate that is ‘service free’ is then selected for each loan type. The reference rate reflects the same risk and maturity profile as the outstanding loans from which the effective interest rates are calculated.

10. 17/12/2015 Statistique Canada Statistics Canada 10 Alternative Method 5. This process is repeated for all types of financial institutions and for both loans and deposits. The total value of loan FISIM and deposit FISIM are then added together and compared to the aggregate measure of net FISIM. The difference between the two is allocated to both depositors and lenders based on their respective FISIM.

11. 17/12/2015 Statistique Canada Statistics Canada 11 Some Results  While the proposed methodology does not have a large impact on the overall level of FISIM it does have a significant impact on the distribution among borrowers and lenders and between final demand and intermediate inputs.

12. 17/12/2015 Statistique Canada Statistics Canada 12 Data Sources – New Lending by type and maturity  In order to implement the above methodology Statistics Canada plans to complement our existing data sources with information currently being collected by the Bank of Canada (Canada’s central bank). In the first quarter of 2010, the Bank of Canada began collecting lending information from the largest Canadian chartered banks, on a monthly basis. The Bank of Canada collects both new lending for various loan categories, and terms to maturity as well as the interest rate charged on those loans for the given month.

13. 17/12/2015 Statistique Canada Statistics Canada 13 Data Sources – Reference Rates reflecting terms and maturity  Statistics Canada will be able to generate weighted average reference rate that will have the same implied risk and maturity profile as the effective interest rate (or a least be a close approximation).  Given we have limited information on repayments, we will prorate them based on the outstanding loan balances.

14. 17/12/2015 Statistique Canada Statistics Canada 14 Data Sources – Reference Rates  We assume that market rates represent the service free rate. For a firm to access the market any associated costs such as underwriting, accounting and legal fees are explicitly charged ex-ante. Therefore we deem such an interest rate as “service free”.  A similar assumption is made for deposits where the reference rate represents the cost the financial institution would face if it was required to borrow on the market.

15. 17/12/2015 Statistique Canada Statistics Canada 15 Some Results

16. 17/12/2015 Statistique Canada Statistics Canada 16 Some Results

17. 17/12/2015 Statistique Canada Statistics Canada 17 Some Results

18. 17/12/2015 Statistique Canada Statistics Canada 18 Some Results