1. Eurostat Financial accounts ESTP course - MIP Luxembourg 1-3 December 2015 Sheldon Warton-Woods Eurostat C-1

2. Eurostat Financial accounts - outline What are financial accounts (FA)? FA-based main indicators FA-based auxiliary indicators Quality framework for FA Reflections on use of FA in the MIP context

3. Eurostat They are part of the integrated set of economic accounts ("national accounts"), which covers both real (non-financial) and financial transactions, other flows, and balance sheets. In the sequence of accounts, the balancing item of the non-financial accounts is net lending / net borrowing (B.9), which is conceptually equal to the balance of the financial account. What are financial accounts (1) 3

4. Eurostat Financial transactions (assets/liabilities): flows which occur either as counterparts of non- financial transactions (affecting B.9), or involve only financial instruments. The financial balance sheet shows the stock of financial assets and liabilities. Shows financial wealth, debt. Other flows: other changes in volume and revaluation accounts (not part of MIP indicators). What are financial accounts (2) 4

5. Eurostat What are financial accounts (3) Financial accounts are broken down by financial instrument and institutional sector. Each sector has its own set of financial accounts, which together comprise the total economy. With the inclusion of the Rest of the world, the financial accounts balance across the sectors. 5

6. Eurostat AF.1 – Monetary gold and SDRs AF.2 - Currency and deposits AF.3 – Debt securities AF.4 – Loans AF.5 – Equity and investment fund shares or units AF.6 – Insurance, pension and standardised guarantee schemes AF.7 – Financial derivatives and employee stock options AF.8 – Other accounts payable/receivable Types of Financial instruments 6

7. Eurostat Transaction value = exchange value in national currency, or in foreign currency converted into national currency at market rate Balance sheet valuation at market prices on the balance sheet date (AF.3, much of AF.5, and AF.7). Various methods are acceptable for valuing unlisted shares and other equity. Nominal value for AF.2, AF.4, and AF.8. Valuation of financial transactions and positions 7

8. Eurostat Institutional sectors S.1 is composed of: o S.11 Non-financial corporations o S.12 Financial corporations o S.13 General government o S.14 Households o S.15 Non-profit institutions serving households S.2 Rest of the world 8

9. Eurostat ESA tables 6 and 7 cover financial transactions, other flows and balance sheets (consolidated and non- consolidated annual data 1995+), at T+9 months. Quarterly financial accounts data (1999+) are available via the European Central Bank, at T+3 months. Annual and quarterly data are available in Eurostat on-line database, along with reference metatdata. Also available on-line are links to sources and methods of national compilers and ECB. ESA 2010 data transmission 9

10. Eurostat Sector consolidation is the elimination of transactions or positions involving reciprocal financial assets / liabilities within the sector Sum of subsectors ≠ sector Sector consolidation 10

11. Eurostat Financial accounts indicators Headline Private sector debt (consolidated) Private sector credit flow (consolidated) Total financial sector liabilities (non-consolidated) [General government gross debt (consolidated)] Auxiliary Private sector debt (non-consolidated) Financial sector leverage (non-consolidated)

12. Eurostat Private sector debt Consolidated, expressed in % GDP (stock) Measuring the debt of the non-financial private sectors (S.11, S.14, S.15) Comprises financial instruments AF.3 and AF.4 Consolidated to measure the amount of funds that the sector receives from other sectors Consolidation is highly relevant in S.11 but negligible for S.14 and S.15 Auxiliary: non-consolidated data

13. Eurostat Private sector credit flow Consolidated, expressed in % GDP Flow counterpart of private sector debt Linked to probability of asset price bubbles and banking crises in the literature. Also a link to external imbalances.

14. Eurostat Total financial sector liabilities S.12, non-consolidated, expressed as year-on-year growth rate Aims at measuring the evolution of the sum of all liabilities of the total financial sector to capture its linkages with the real economy A very broad measure of the expansion of the exposure to potential risks in the financial sector Good early-warning qualities Added in 2012 Auxiliary: Financial sector leverage (debt-to-equity ratio)

15. Eurostat General government gross debt Expressed in % GDP Maastricht Treaty definition: consolidated debt of S.13 at nominal value (EDP and SGP) Comprised of AF.2, AF.3, AF.4 Important linkages between private and government debt, and between sovereign and financial sector risks A high level of general government debt weakens the ability of a country and to deal with crisis situations

16. Eurostat High degree of comparability between countries Methodological consistency between the indicators Provides a suitable breakdown by sector and financial instrument, stock and flow Quality assurance via integrated accounts with established rules Timeliness is sufficient. Why use financial accounts? 16

17. Eurostat Quality control – new framework A quality monitoring/ improvement framework for MIP relevant statistics is being set up by ESS and ESCB. It includes the completion by countries of templates on processes for statistics underlying the financial accounts- based MIP indicators, providing the basis for monitoring quality and comparability among countries. Template covers both annual and quarterly data compilation. Quarterly data provides additional information for the MIP data compilation and evaluation.