1. ©Federal Statistical Office of Germany, Wolfgang Eichmann 1th Meeting of the Task Force On Financial Intermediation Services Indirectly Measured (FISIM) 4-5 October 2010, Luxembourg IV. Methodological Problems in Measuring FISIM 3. Treatment of risk in FISIM calculations Presentation by DESTATIS Germany

2. ©Federal Statistical Office of Germany, Wolfgang Eichmann CONTENT Preliminary remark 1. State of the art (Durban) 2. Progress 3. Make or buy criterion 4. DESTATIS Proposal

3. ©Federal Statistical Office of Germany, Wolfgang Eichmann Preliminary remark FISIM attracts attention outside the National Accountants community “The Contribution of the Financial Sector: Miracle or Mirage?” by Andrew Haldane, Simon Brennan and Vasileios Madouros. in “The Future of Finance: The LSE report”, July 2010 Comment of The Economist July 17th 2010: Headline: A mirage, not a miracle The banks` contribution to the economy has been overstated “The consequence of this approach (FISIM, W.E.) is that when interest margins rise for corporate borrowers, as they did in late 2008, the gross value added of the banking sector appears to go up. But without adjusting for risk, this measure of the finance sectors´ economic worth is meaningless”

4. ©Federal Statistical Office of Germany, Wolfgang Eichmann State of the art (Durban) FISIM and Risk: Two camps “Single rate” Fixler, Reinsdorf, and Villones(USBEA) [NSO] Davies (ABS) [NSO] “Multiple rate” Wang (Federal Reserve Bank of Boston) [CB] Hagino and Sonoda (Bank of Japan) [CB] Colangelo and Mink (ECB) [CB] Eichmann (German Federal Statistics Office, DESTATIS) [NSO] Source: Adelheid Burgi-Schmelz, Director, Statistics Department International Monetary Fund, Durban 2009

5. ©Federal Statistical Office of Germany, Wolfgang Eichmann Progress in the state of the art RiskDefinitionECBBEA Currency riskLoan denominated in a foreign currencyExclude in line with SNA Debt’s (maturity- dependent) interest-rate risk or term risk), Expectations about future course of short term rates over the lifetime of long term rates Exclude “Risk bearing” Include “Liquidity transformation service” Default risk Credit risk premia The possibility that a debtor default, by failing to repay principal and interest in a timely manner. Exclude Liquidity riskLiquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event causes counterparties to avoid trading with or lending to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity. Thanks heaven we have the ECB Thanks heaven we have the FED Prepayment riskPrepayment is early repayment of a loan by a borrower. To compensate for the prepayment risk (which is a reinvestment risk), prepayment penalty clause is often included into the loan contract. At least in Germany either part of the contract with higher interest rates or prepayment penalty clause.

6. ©Federal Statistical Office of Germany, Wolfgang Eichmann Make or buy criterion If something bought from a third party is a service => own production is on principle a service, too is a financial asset => „own production“ on principle can not be a service default risk => credit default swaps => no service term risk => interest rate swap => no service

7. ©Federal Statistical Office of Germany, Wolfgang Eichmann DESTATIS Proposal (I)

8. ©Federal Statistical Office of Germany, Wolfgang Eichmann Serv ServiceService Risk Bank Serv. DESTATIS Proposal (II) Reference- rate Standard 2 YearsGiro Deposits Loans „negative Fisim“ ?