CHAPTER 12 IMPROVED MEASURES OF FINANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED (FISIM) IN THE INTERNATIONAL ACCOUNTS

Warning: The estimates in this publication are indicative. They are presented to give an indication of the magnitude of the impacts of proposed change to Australia's macro-economic accounts. All estimates are subject to refinement and revision in the compilation of the quarterly balance of payments to be published on 8 December 2009.

INTRODUCTION

Banks and other financial intermediaries earn income not only through explicit fees and charges but also on margins between interest paid to depositors and charged to borrowers. This margin is know as Financial Intermediation Services Indirectly Measured (FISIM). FISIM is a service flow which is the difference between the reference rate and the actual interest rate charged on loans and offered on deposits by banks and other financial institutions. The reference rate represents the service-free rate.


CONCEPTUAL CHANGES

The Balance of Payments fifth edition referred to FISIM as an indistinguishable part of investment income which diverged from the treatment in the System of National Accounts 1993 (SNA93). FISIM is covered in greater detail and recognised as a service in the Balance of Payments and International Investment Manual sixth edition (BPM6), and is defined as the interest margin derived by offering rates of interest to their depositors that are lower than the rates that they charge to their borrowers.

FISIM payable by both depositors and borrowers will be calculated by using the concept of a 'reference' rate of interest. The reference rate should contain no service element and reflect the risk and maturity structure of deposits and loans. The rate prevailing for interbank borrowing and lending may be a suitable choice as a reference rate. A single rate should be used for transactions in the domestic currency, whereas different rates should be applied for loans and deposits in other currencies. The reference rate will change over time with market conditions.

Updated BPM6 standards recommends that FISIM calculations be derived from stock levels of loans and deposits. The recommended BPM6 formula is:

[(Loan rate - reference rate)*Stock of loan] + [(reference rate - deposit rate)*Stock of deposit]

The recommended methodology will be to determine the rates implied by interest payable/receivable reported on the relevant instruments (loans and deposits) and from this, subtracting/adding a reference rate in order to calculate the FISIM service charge. The net interest figure remaining will then be published as investment income in the relevant instrument. The service charge will then be included as a financial services credit or debit in services.


IMPLEMENTATION AND METHODOLOGY

The ABS will base the calculation of FISIM in the international accounts on reported income flows rather than reported asset and liability levels to ensure that calculated FISIM is consistent with reported income.

The methodology for calculating FISIM by income flows is:

[(Loan rate - reference rate) * interest flow on loan/loan rate] + [(reference rate - deposit rate) * interest flow on deposit/deposit rate]


Exports of FISIM

Exports of FISIM are generated through two transactions:

• interest income earned by resident financial intermediaries (providing service) on loans to non-resident non-financial entities;
• interest income payable by resident financial intermediaries (specifically depository corporations) on deposits (providing service) from non-resident non-depository corporations.

Imports of FISIM

Imports of FISIM are generated through two transactions:

• interest income receivable by resident non-depository corporations on deposits held with non-resident financial intermediaries (specifically depository corporations) (providing service).
• interest payable by resident non-financial entities on loans from non-resident financial intermediaries (providing service).

IMPACT ON INVESTMENT INCOME AND TRADE IN SERVICES

As interest flows paid and received by financial institutions will contain both FISIM and pure interest, other interest income in the primary income account will have to be adjusted downwards for loans and upwards for deposits.

Below are the adjusted FISIM credits and debits as a proportion of current financial services' credits and debits as published in Balance of Payments and International Investment Position, (cat. no. 5302.0) for illustrative purposes only.

1 FISIM credits, (exports)
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Loans	47	71	74	136	125	156	180	205	236	193	192	220	253	201
Deposits	84	170	159	185	237	251	354	356	353	301	254	341	339	325

2 FISIM debits, (imports)
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Loans	93	94	63	56	93	72	61	109	96	55	92	157	181	151
Deposits	0	0	0	0	0	0	0	0	0	0	0	4	1	6

FURTHER ISSUES IN FISIM MEASUREMENT

FISIM is an issue which is attracting a great deal of international attention as a result of volatility during the Global Financial Crisis. Since SNA08 and BPM6 have been published, there is still no international consensus as to how FISIM should be measured. With Australia being one of the first countries to adopt SNA08 and BPM6, there is much interest in the results presented. FISIM and its measurement is not expected to be fully resolved internationally for some time to come.