1. ESTAT/A/1 29/02/2016 02:16 Slide: 1 European Commission - Eurostat Discussion on methodological problems and solutions Practical approaches of the Members States Agenda Item 4

2. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 2 Overview I. I.Internal and External Reference Rates II. II.FISIM allocation into Domestic User sectors Austria’s Experience III. III.Intermediate and Final Consumption of Household sector, Lithuania’s Experience IV. IV.Treatment of central banks V. V.Exports and Imports of FISIM, Germany’s Experience VI. VI.FISIM at constant prices VII. VII.FISIM allocation among Industries

3. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 3 I Reference Rates The calculations of FISIM start with collecting the data on stocks and interest flows for loans and deposits, and constructing matrices “from whom to whom”. Then, these matrices on stock and interests must be check against one another, and adjusted for the FISIM allocation concepts. Then, these matrices on stock and interests must be check against one another, and adjusted for the FISIM allocation concepts. The compilation of the Reference Rates are based on the matrices for interests and stocks, which cover all Inter-bank relationships for all units: The compilation of the Reference Rates are based on the matrices for interests and stocks, which cover all Inter-bank relationships for all units: within S.122; within S.122; within S.123; between S.122 and S.123.

4. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 4 Date used to compile FISIM Liabilities and Pay.Int.  Assets and Rec. Int.  Resident FIs (1)ResidentNon-FIs(2) Non- Resident Non-FIs(3) FIs(4)TOTAL Liabilities and Pay.Int. ResidentFIsInter-BDepos.Depos.Inter-B ResidentNon-FIsLoansxxLoans Non-ResidentNon-FIsLoansx00 Non-ResidentFIsInter-BDepos.00 TOTAL Assets and Rec. Int. The bank point of view

5. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 5 I Reference Rates AssetsLiabilities Bank A 90 10 Bank B 10 90 Total inter-bank 100 Bank A makes a transfer of a financial asset of 90 (stock value) to Bank B. This transaction must be recorded in the accounts of both banks, i.e., 90 must be recorded on assets side of Bank A and on the liabilities side of Bank B. Bank A makes a transfer of a financial asset of 90 (stock value) to Bank B. This transaction must be recorded in the accounts of both banks, i.e., 90 must be recorded on assets side of Bank A and on the liabilities side of Bank B. Bank B makes a transfer of financial asset of 10 (stock value) to Bank A. Bank B makes a transfer of financial asset of 10 (stock value) to Bank A.

6. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 6 Internal Reference Rate I Reference Rates External Reference Rate

7. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 7 Data is taken from the matrices “from whom to whom”, which consists of detailed breakdown of FISIM Producer sectors (S.122 and S.123) by counterpart sectors which are the FISIM Consumer sectors. The latter sectors can be either Resident sectors (S.11, S.124, S.125, S.13, S.14, and S.15) or Non-resident sectors (S.2 FIs and S.2 Non-FIs). The calculation and allocation of FISIM among Domestic User sectors is based on the difference between the Actual Interest payable/receivable and the Internal Reference Rate. II FISIM allocation to domestic sectors

8. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 8. Although FISIM Regulation does not explicitly mention S.122 and S.123 sectors as Consumers of FISIM, these types of FISIM transactions might occur in some rare cases. FISIM is a net concept. In the Inter-bank relationship one Financial Institution (FI) is a net FISIM Producer and the other one is a net FISIM Intermediate Consumer. The rule is that the value of the FI should be recorded as Net FISIM Producer or Net FISIM Intermediate-Consumer, depending on the sign of the result. FISIM is a net concept. In the Inter-bank relationship one Financial Institution (FI) is a net FISIM Producer and the other one is a net FISIM Intermediate Consumer. The rule is that the value of the FI should be recorded as Net FISIM Producer or Net FISIM Intermediate-Consumer, depending on the sign of the result. It is worth noting differences between EU countries in the classification of some FIs. Depending on the national regulations of the financial institutions or financial activities, it could be that the same FI could be classified in the S.122 sector in one country and in the S.123 sector in another country. It is worth noting differences between EU countries in the classification of some FIs. Depending on the national regulations of the financial institutions or financial activities, it could be that the same FI could be classified in the S.122 sector in one country and in the S.123 sector in another country. II FISIM allocation to domestic sectors

9. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 9 Treatment of Non-Market units II FISIM allocation to domestic sectors 6 6 Output = SUM of costs TOTALUSESTOTALUSES GG Final consumption GG 6FISIM Intermediate consumption GG HH, GCF, etc

10. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 10 III Intermediate and Final Consumption by Households Some of the Member States had problems in properly identifying Intermediate and Final Consumption of the Household sector, due to difficulties with the data of Households as Owners of Dwellings. The Regulation, in the case of deposits, suggests allocating the corresponding FISIM estimates into final consumption. The Regulation, in the case of deposits, suggests allocating the corresponding FISIM estimates into final consumption. Important alternative data sources are the ECB statistics on retail banking Important alternative data sources are the ECB statistics on retail banking Banking statistics on loans by purpose of dwellings or construction can be used to calculate a proxy for the above-mentioned breakdown of Household sector Alternatively method could be as in table below Banking statistics on loans by purpose of dwellings or construction can be used to calculate a proxy for the above-mentioned breakdown of Household sector Alternatively method could be as in table below Households as:LoansDeposits Owners of dwellings5510 Owners of unincorporated enterprises20- Consumers2590

11. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 11 Although Central Bank is a market unit, by convention (according to the Regulation) its total output (FISIM and non-FISIM) is measured as a sum of costs, for example (316) P1= 120 (P.2) + 180 (D.1) + 1 (D.29 less D.39) + 15 (K.1) By convention the output Central Bank is entirely allocated to intermediate consumption of S.122 and S.123 IV Treatment of Central Bank (S.121)

12. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 12 In the old recording systems (FISIM not allocated), Interest Received (D.41) consisted of all Interest Received (including FISIM charges), whereas Interest Paid did not include FISIM. In the new system (FISIM allocated), Interest Received must be recorded as free of FISIM. Therefore, in the allocation of primary income account, Interest Received is reduced by the amount of FISIM. IV Treatment of Central Bank (S.121) P1 (FISIM + non-FISIM) = 316 P1 (non-FISIM, measured on the bases of fees and commissions)= 20 Old D.41 received = 2100 New D.41 received (free from FISIM) = 2100 - 296 (P.1 FISIM) = 1804

13. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 13 Important data source to construct the the matrices “from whom to whom” are International Investment Position data from the Balance of Payment statistics. The same data source is also use to compile Financial Accounts. So, theoretically, data should be available with the required breakdown. A possible supplementary data source could be data from the Bank for International Settlements (BIS) on deposits and loans of banks around the world by country of counterpart. Exports and Imports of FISIM are be calculated based on the difference between the Actual Interest payable/ receivable and the External Reference Rate. Exports and Imports of FISIM are be calculated based on the difference between the Actual Interest payable/ receivable and the External Reference Rate. V Export and Import of FISIM

14. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 14 V Export and Import of FISIM l l Negative Export of FISIM must be recorded as Positive Import. This follows the concept of net FISIM, where the relation between two banks is that one is net Producer and the other one is net Intermediate Consumer. In international relations residents banks producing FISIM are exporters, whereas the non-resident consumers of FISIM are importers. l l The Inter-bank transaction (FISIM) between Resident and Non- resident is recorded as Import or Export depending of the sign of the result.

15. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 15 V Export and Import of FISIM UsesResources S.1S.2 (RoW)Total S.1S.2 (RoW) P1 (Output)7324 - of which6488 968 - 132 P2 (Int.Cons.)4631 P3 (Fin.Cons.)3067 P6 (Exp FIs) P6 (Exp NFIs)968 P7 (Imp FIs)+ 132 P7 (Imp NFIs) 1210 Balance8666

16. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 16 FISIM at constant prices Eurostat recommends two methods to calculate FISIM at constant prices Method 1 uses detailed output indicators, which covers the activities that generate FISIM Method 1 uses detailed output indicators, which covers the activities that generate FISIM Method 2 uses deflated stocks of loans and deposits as a volume indicator. Recommender deflators are: the GDP deflator; the deflator of domestic final demand; the overall CPI. Method 2 uses deflated stocks of loans and deposits as a volume indicator. Recommender deflators are: the GDP deflator; the deflator of domestic final demand; the overall CPI.

17. European Commission - Eurostat ESTAT/ 29/02/2016 02:16 Slide: 17 Eurostat proposed two methods of allocating FISIM among industries: Method I - based on stocks of loans and deposits for each industry Method II - based on the output for each industry 17 EU countries gave information on which method they used: Method I was used by 3 countries - CZ FI SE Method II was used by 8 countries – ES IT LT HU NL PL PT Combination of Methods I and II was used by 6 - BE DK DE EE FR AT Allocation of FISIM among industries