WHAT SERVICES FOR WHAT SOCIETY



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table of contents

Purpose of the paper 3

Introduction 3

1. Definition of production in the 1993 System of National Accounts (SNA93) 4

1.1 General definition 4

1.2 Definition of financial intermediation 4

2. Definition of the financial corporations sector 5

3. Analysis of the activity of financial intermediaries 56

3.1 General analysis 56

3.2 Special points 6

4. Consequences of the current prescriptions 8

5. Avenues for further thought 9

1. What form do services take in a post-industrial society? 9

2. What in fact is meant by «a purely natural process outside human control or intervention» , which is not counted as production in national accounts? 11

3. Should special treatment be given to financial «market makers»? 12

6. Conclusion 13

BRIEF BIBLIOGRAPHY 14

WHAT SERVICES FOR WHAT SOCIETY?

How should the services provided by financial intermediaries in a modern society be measured?

Purpose of the paper

This paper looks at the consequences of moving from an industrial society to a service society. It focuses in particular on the changes of the characteristics of service activities and more specifically asks what should be measured in such a society.

Using financial corporations as an example, it shows why the current definition of services deserves discussion or even revision if the changes in the conditions prevailing in financial markets are to be taken into account.

The aim of a paper such as the present one is not to call the fundamental principles of national accounts into question, to increase GDP out of hand or to alter production boundary. Rather the intent is to launch an in-depth discussion on how to define services in particular rapidly developing segments of a post-industrial society.

Introduction

In recent years, businesses have raised extensive bond loans and large share issues in order to finance their operations, while bank loans, the traditional source of funding, have declined in importance. As a result, countries that were formerly economies with debt systems based on bank loans have turned into economies with debt systems based on financial markets through the issue of bonds and shares. This fundamental change involves transfer of the credit risk; whereas banks used to be the sole bearer of the risk of debtor default when granting a loan, that risk has now been passed on to the individual holders of securities.

In addition, this structural change has opened up national markets and led to the standardisation of securities, thus encouraging the emergence of financial firms that operate in the international arena. Such firms are paid commissions in return for advice on the issue, placement and negotiation of securities. They also manage large portfolios both for their customers and on their own account. The globalisation of markets and businesses and the magnitude of capital flows have radically altered the way banks work.

As a statistical synthesis and as a tool for economic analysis, national accounts are expected to reproduce economic realities in all their complexity. The structural changes that have affected financial businesses in recent years have in many ways made it difficult to collect data and carry out measurement. Globalisation, for example, makes it hard to apply the criterion of territoriality so dear to the hearts of macro-economists. Banks working on an international scale take advantage of standardised securities and the close linkages of financial markets in order to monitor the movements in the securities in their various portfolios. Since an operation may be brought to completion in any international financial centre, the time zone is often the determining factor in finalising it. A European unit floating an offer might well leave the operation to be terminated by its American partner. In such cases, it is difficult to assign all of the value added to one unit or the other. The banks themselves employ sophisticated monitoring procedures to ensure that the various players are remunerated in accordance with their actual contribution. Without detailed information, national accounts find it hard to apply the criterion of territoriality in a rigorous way.

In a more fundamental way, the very core activity of banks has changed. Their traditional function of taking in money in order to reinvest it is giving way to the management of financial assets. For a country like Switzerland, the amounts involved are enormous. The securities deposited in its banks came to 3285 billion Swiss francs in December 1999, while Switzerland’s GDP was 388 billion Swiss francs in 1999.

The point is that the management of financial property generates holding gains and losses. For conceptual reasons, national accountants exclude these from the production boundary. This paper examines the reasons for this treatment. It considers the implications of the present approach and the problems it involves for interpretation. It indicates a number of approaches that may help in thinking about the issue. The aim is not to integrate holding gains and losses in the production boundary but rather to focus the reflections on how to define services, using financial intermediaries as an example. This sector has been chosen because the practices mentioned above are growing in importance. Furthermore, it involves a restricted number of global players. These major banks engage in a number of tasks that benefit all economic players (maintaining market liquidity, guaranteeing the security of transactions, disseminating information, etc.) The point under consideration is how this service is remunerated. To start with, the best approach is to look more closely at the kind of «service» offered by these businesses and then seek ways to quantify it.

Definition of production in the 1993 System of National Accounts (SNA93)

General definition

SNA93 defines production as an activity carried out under the control and responsibility of an institutional unit. An institutional unit owns goods produced as outputs or is entitled to be paid, or otherwise compensated, for the services provided. A purely natural process without any human involvement or direction is not production in an economic sense. (SNA93,§6.15)

Apart from this general definition, SNA93 provides detailed indicators for measuring production in given branches of activity, such as wholesale trading, financial leasing or research and development. Financial intermediation itself is defined in the section dealing with institutional sectors and units (Chapter IV) and not the one dealing with production (Chapter VI). Those not party to the discussions preparing the SNA93 might be surprised by this provision. Indeed it means that financial intermediation is narrowed down to the description of characteristics of activities performed by financial intermediaries. It only enables them to be distinguished from other businesses. This approach makes assignation to sectors easier but causes some problems in measuring production.

Definition of financial intermediation

According to SNA93, financial intermediation is «a productive activity in which an institutional unit incurs liabilities in its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market. The role of financial intermediaries is to channel funds from lenders to borrowers by intermediating between them. They collect funds from lenders and transform or repackage them in ways which suit the requirements of borrowers. A financial intermediary does not simply act as an agent for other institutional units but places itself at risk by incurring liabilities on its own account». (SNA93, §4.78)

SNA93 distinguishes two types of output of financial intermediaries. The first comprises services that are billed directly such as currency exchange and investment advice. This output is valued like other services on the basis of fees or commissions. The second type of output comprises services which are not charged explicitly. In such cases financial intermediaries pay and charge different rates of interest to lenders and borrowers. Such income, termed financial intermediation services indirectly measured (FISIM), is measured as the total property income receivable by financial intermediaries minus their total interest payable (SNA93, §6.125).

Definition of the financial corporations sector

This sector includes:

• All resident corporations or quasi-corporations principally engaged in financial intermediation. These units generally assume risk themselves by incurring liabilities on their own account. They thus meet the principal criterion for financial intermediation as defined above.

• All resident corporations or quasi-corporations engaged in auxiliary financial activities which are closely related to financial intermediation. Provision of such auxiliary services can be a secondary activity of financial intermediaries or be provided by specialised agencies[1] or brokers[2]. These units unlike those in the preceding category, do not acquire financial assets and put themselves at risk by incurring liabilities on their own account. However, the services they provide do nevertheless facilitate financial intermediation as such[3].

The inclusion of financial auxiliaries in this sector gives rise to the following comment in SNA93 :

« (…) It is becoming (…) increasingly difficult to draw a clear distinction between true intermediation and certain other financial activities. The boundary (…) has become rather blurred as a result of continuous evolution and innovation in financial markets. (…) However, this is not the only reason for classifying financial auxiliaries in the System (...) . Corporations whose principal function is financial intermediation also tend to provide a wide range of auxiliary services themselves as secondary activities. As a corporation as a whole has to be allocated to a sector, the auxiliary activities of financial corporations would fall within the financial corporate sector of the System anyway, even if financial auxiliaries themselves were to be excluded » (SNA93, §4.80 and §4.81).

Analysis of the activity of financial intermediaries

General analysis

The activity of financial intermediaries :

• Enables the preferences of units with different redemption periods or risk profiles to be equated, which leads to a change in the nature of the funds collected and loaned.

• Implies a special kind of balance sheet. In manufacturing, the production process physically changes goods purchased from third parties into finished or semi-finished products. The inputs are generally radically altered. In the case of financial corporations, liabilities are an outcome of the production process and continue to exist as such in conjunction with the assets that are created once the production process is complete.

• Is defined in relation to a limited number of financial assets and liabilities. The liabilities are mainly deposits, or close substitutes while the assets are chiefly advances or loans and the purchase of bills, bonds or other securities (SNA93, §4.78).

Special points

The following points may be noted:

1. The principle whereby the creation of financial instruments as such does not generate value added lies at the heart of this review. To take a simple example, consider a bank which takes in deposits of amount X from households and then makes this sum available to businesses. The bank’s liabilities are increased by the same amount as its assets. Creation of financial assets such as "Transferable deposits" and "Loans" therefore creates no value added[4].

On the other hand, the remuneration earned by these positions is different, with the interest paid by the bank on household deposits being lower than the interest charged on loans. The advisability of including this interest differential in the accounts of financial corporations was once the subject of much debate. Economic theory considers interest flows by their nature to be property flows, since they remunerate the act of making funds available. In that context, they come under the heading of allocation of added value. If interests were to be considered as generating added value, all sectors would become producers of services. National accountants solved this problem by putting forward the special nature of financial intermediation: the intermediary itself assumes a risk by using funds it has collected to make liabilities on own account. It thereby provides a service, that is the adjustment of preferences, and that service is remunerated in the form of an interest differential The accomodation of differences in preferences in terms of redemption periods and risk profiles is thus the factor generating the value added. The interest differential is thus no more than an indirect means of measuring the service provided by the financial intermediary.

This review may be extended to other cases but the end result is exactly the same. Hence when funds on deposits are used to acquire a non-quoted bond, the bank again receives a higher rate of interest than that paid out to depositors. At redemption, reimbursement of the capital permits recovery of the initial investment. With bonds quoted on the stock market, the only change is in financial balance sheet, where the relevant positions must be evaluated at market price. Changes in the stock-market quotation during the year are reflected in the revaluation account, which balances the opening and closing positions in financial balance sheets. If the bond is sold, the intermediary receives the stock-market price. The total of the financial balance sheet remains the same, since the security already appears there at its market value. The only change is in its composition (replacement of «Securities other than shares» by «Currency and deposits»). On the other hand FISIMs are not affected by changes in the value of the security so that the value added of financial intermediaries remains unchanged.

Under SNA93 therefore, the creation of securities generates no added value. This can also be shown by the following example: consider a firm instructing a financial intermediary to float some of its share capital on the stock market. For various reasons (a fall in the stock market for instance), the operation fails and no securities are issued. The firm nevertheless pays commissions, which are reported as output in the financial intermediary’s production accounts. These commissions do not therefore represent remuneration for the creation of securities associated with flotation on the stock exchange. They pay for the preparatory work (scrutiny of legal aspects, preparation of paperwork, publicity, etc.) as well as the bank’s expertise and access to the financial intermediary’s distribution network.

2. Conversely, holding securities does not belong to the production process, which is defined as an activity conducted under the control and responsibility of an institutional unit. Price or quotation changes arise from the overall interplay of supply and demand. There is therefore no control or responsibility exercised by any individual unit. The SNA therefore considers that the holding gains resulting from price changes cannot effect the output of the unit holding the assets. They only affect the financial balance sheet.

3. Lastly SNA93 stipulates that an institutional unit is entitled to some form of payment or compensation for services provided. Since holding gains are not considered a form of remuneration, they should not have any effect on distribution operations such as interests or dividends. This choice has an impact on the interpretation given to disposable income in national accounts. Indeed, this interpretation departs from the concept found in economic theory SNA93 sets out the situation as follows:

"From a theoretical point of view, income is often defined as the maximum amount that a household, or other unit, can consume without reducing its real net worth. However, it may be changed as a result of real holding gains or losses that accrue on its assets or liabilities. (…) Real holding gains or losses (…) are specifically excluded from disposable income as measured here. (…) Disposable income is better interpreted in a narrower sense as the maximum amount that a household or other unit can afford to spend on consumption goods or services during the accounting period without having to finance its expenditures by reducing its cash, by disposing of other financial or non-financial assets or by increasing its liabilities. This concept is equivalent to the economic theoretic concept only when the net worth at the beginning of the period is not changed by capital transfers, other changes in the volume of assets or real holding gains or losses." (SNA93, §8.15)

By excluding holding gains and losses, SNA93 ensures consistency between the production based approach of GDP and the income based approach.

4. In its definition of operations that generate value added, SNA93 concentrates on those that are carried out for the benefit of third parties[5]. However this does not mean that output that does not leave the producing unit fails to generate value added, as may be seen from the example of a household that owns and occupies a dwelling. From the standpoint of national accounts, a housing service has been produced and, through deduction of the costs associated with occupation of the dwelling, an added value. This imputed rental is used by the producing household and a balance ensured between uses and resources. SNA93 lists the units that may have an output on own account. They are owners of dwellings, as mentioned above, firms producing capital goods and households as employers of domestic labour. A comment is needed in each case since production on own account by such units has an effect on the final overall uses figure, which could be final consumption for household, gross fixed capital formation and changes in inventories. On the other hand, no comment is needed where output on own account only affects the production account. In such cases production on own account is reflected in intermediate consumption, and has a neutral impact in terms of value added. Production on own account is included in the final price of the good, and the balance is straight forward. Under SNA93 this is applicable to all businesses that are registered corporations[6].

Consequences of the current prescriptions

The current provisions of SNA93 have the following consequences:

1. As far as the SNA is concerned, the balance sheet is the working tool of most financial intermediaries: assets and liabilities are created during the same period and remain in existence at the end of the period. The SNA93 lists assets and liabilities by name, which raises questions about how best to incorporate the new instruments continually appearing in financial markets, which are complex and often appear as annexes to balance sheets (conditional operations, derivatives, etc.). It is often difficult to find a simple rule for recording them. The traditional measure of service thus provides only an imperfect idea of what financial intermediaries are actually doing.

2. Data on labour productivity[7] are difficult to interpret because of two factors that blur the analysis:

a) Commissions received, the principal component of banking output, are strongly affected by stock-market fluctuations. The amount of commission may therefore vary widely without any change of the labour input. It is often difficult to establish a relationship between value added and labour input.

b) Banks have specialised units whose main function is to manage security portfolios. When this is done on customers’ behalf, compensation appears in the production account in the form of bank commissions. However, when own portfolios are managed, no entries are made in the production account. Hence, when productivity is assessed, all of the labour input[8] is taken into account while only a part of the activities is part of the production account. This causes difficulties in interpreting productivity.

3. Failure to recognise own account output has the following consequence for financial intermediaries. When a bank acquires a stock-market security under instructions of a customer, this transaction appears as an output since it gives rise to payment of a commission. However, the same operation carried out on the bank’s own behalf is not counted as an output.

4. FISIMs must be calculated exclusive of property income derived from investment of their own funds. As a matter of fact own funds do not come under the heading of financial intermediation (SNA93, §6.125). The debate on how to assign FISIMs to the users has shown that it is difficult to determine the share of own funds in total property income. Various methods have been considered, but they generally encounter difficulties in practice. One proposal, for instance, has been to use redemption dates, on the assumption that own funds are mainly used for long-term investments. In this case the interest received on long-term investments would be excluded from FISIM calculations. However, this approach fails to take account of the existence of markets that allow rapid sale of most financial assets. As a result, the distinction between long- and short-term no longer has much relevance and it seems difficult to have a specific measurement for the yield from own funds.

5. From the SNA93 standpoint, the work done by market makers does not generate value added. This is a very revealing special case. These enterprises are very large, are always present in the market and pursue an active portfolio policy. In so far as their activities:

− Are generally carried out on own account, and

− Produce holding gains

they generate no value added[9]. Such units are often part of a larger corporations and the problem is not always obvious. However, if they happened to be hived off, the national accounts would be faced with an institutional unit with paid staff that produced nothing. However, according to economic theory the work of market makers benefits all players. Such units act as systematic counterparts in operations and their contribution is a determining factor for the smooth functioning of the market. As they are first-class corporations, they also ensure a high level of security for transactions. By being restrictive, SNA93 takes no account of the « service » provided by such units.

6. Calculation of dividends often relies on administrative data, which means that dividends paid include holding gains. For example, financial intermediaries would often have been incapable of paying out considerable dividends without the gains achieved by their units that specialise in the management of investment portfolios. One may therefore wonder if dividends paid do not generally include holding gains. In such a case, the interpretation given above of SNA’s definition of disposable income needs to be reviewed.

Avenues for further thought

The two preceding sections have shown that macro-economic analysis is becoming harder because the concepts of «service» and of «financial intermediary» have changed so much in practice. In these circumstances, it may be useful to embark on a joint effort of thought. At the present stage, it would help to explore possible avenues without being restricted to any particular aspect of the issue. In this way attention might be given to the following approaches :

What form do services take in a post-industrial society?

What has been said in preceding sections shows that some thought needs to be given to the kind of services businesses provide in a post-industrial society, since the form taken by services tends to change. It is surprising to find that no overall definitive definition of a «service» exists. Like many other writers on the subject, SNA93 uses the definition given by Hill, who describes services as (...) a change in the condition of a person, or of a good belonging to some economic unit, which is brought about as the result of the activity of some other economic unit, with the prior agreement of the former person or economic unit» (T.P. Hill, « On goods and services », in The Review of Income and Wealth, Number 4, December 1977, p.318).

Service activities are thus characterised by the following elements:

• Services are provided to a customer who is identified at the time of production.

• Services change the general situation, the mental or physical state or the characteristics of the customer, or the object owned by the customer.

• Service production should be confined to activities that can be carried out by one unit for the benefit of another.

• Services are not durable and cannot be stocked.

These links may be shown graphically as follows:

It may also be noted that :

• A and B must be different units. This is clear from the fact that C is owned by B but not by A.

• Provision of services relates to the object C and is therefore not a self-sustained act.

This view of services relies on a model of society based on the production of standard goods that are transported, sold and repaired once they have been produced. It would seem wise to reconsider this view of reality in a post-industrial society in which consulting services, financial services and intangible assets are essential ingredients. In such circumstances, consideration might also be given to whether the principal features of services listed above are still relevant :

Knowing the customer before service is provided

In complex areas of production such as the provision of information or financial services, part of the service must be delivered even before the final user is known. Without preparatory work, the service can often not be provided within the given time limits. This is why businesses seek as far as is feasible to standardise the component parts of services, which are then put together once the customer and the customer’s coordinates are known.

If this change is accepted it weakens another criterion.

Services are not durable and cannot be stocked

Keeping to the example of provision of information, it might legitimately be asked whether the service as a kind of product could not in fact be stocked. The same might be said of the know-how of a corporation whose principal «raw material» is the expertise of its staff.

Once there are services that can be produced to be stored for customers as yet unknown, it may also be asked whether the following criterion is still relevant.

Provision of services alters the condition of a consumer’s goods

It could also be postulated that services produced in advance may at a later date have an effect on the condition or knowledge of a consumer or on a good in the possession of that consumer.

What in fact is meant by «a purely natural process outside human control or intervention» , which is not counted as production in national accounts?

The terms «natural», «intervention» and «control» are difficult to apply to financial intermediaries. Such an approach is typical of «natural» economics and industrial production processes. The situation is different when a specialised unit in a bank regularly restructures its financial asset portfolios in line with market changes, so that it is continually taking decisions that affect the final outcome. Are the holding gains made in this way «purely natural»? That might be the case if the value added exactly matched the changes in the stock market index. In such circumstances, the composition of the bank’s investment portfolio would be identical with that of the stock market index, and the financial intermediary would not need to take any action to achieve a holding gain or loss. In practice, financial intermediaries endeavour to do better than the average trend by regularly restructuring their portfolios. It could therefore be considered that changing the structure of bank portfolios is an activity that ought to be compensated.

To take the analysis further, it may also be asked whether the value of a portfolio might not differ from the sum of the items making it up. From this standpoint, the value of the portfolio as a unit is greater than that of all the items taken separately. In production terms, it might be considered that any given structure of the portfolio could be considered a separate product. In these circumstances, it might also be asked how the creation of such a product could be measured.

Many of the points made above have to be taken into consideration when the definition of holding gains and losses is reconsidered. This reconsideration still needs to be done. The 1995 ESA makes a distinction (paragraph 6.35 and seq.) between nominal, neutral and real gains and losses. A neutral gain is the value of the holding gain that would accrue if the price of the asset changed over time in the same proportion as the general price level. The real gain is the difference between the nominal gain and the neutral gain. It is therefore contingent on the price fluctuations of the asset in comparison to the average movement in other prices as measured by the general price index. These definitions could be expanded and improved, for example by including the regular restructuring of portfolios by the banks.

Should special treatment be given to financial «market makers»?

Financial theory stresses the importance of the role played by market makers. These units may be considered to offer users (internal or external) a service by ensuring the proper working of the market. By consistently being there as a counterpart in all operations these players may acquire considerable holding gains, which thus remunerate the action of managing financial markets. This conceptual change is a fundamental one and calls for the following questions to be considered :

• Who are the purchasers of the «service»? They may be players already present in the market at a given time, or in the economy as a whole, who would benefit from easier access to diversified sources of funding.

• Who would be the recipients of the «service»? A household that sells a security in a falling market and buys it back later on at a higher price will not necessarily recognise that the financial intermediary has provided a «service» by acting as a counterpart in these operations.

• What entries should be made when these operations lead to losses for financial intermediaries?

• If these operations generate added value when they are carried out on the intermediary’s own account, ought the same operations be excluded when carried out for customers? In other words, once accepted for financial intermediaries, should holding gains and losses be allowed to affect all sectors?

• If activities carried out by intermediaries on their own account create value added, what happens with regard to non-financial units? On this subject, the following comments by C.B. Wright of the Bank of England are of interest:

“(…) the argument for regarding own account trading of intermediaries as different in nature from that of other sectors may be stronger. Market making requires the intermediary to quote two way prices and to accept or deliver securities resulting from consequential trades. This will normally imply the need to hold stock, so that the temporary existence of short or long term open positions is an integral part of the business process. While it may be conceptually possible to regard position taking initiated by the intermediary as something separate from the temporary holding of positions resulting from customer driven business, the reality is that no such distinction can be made in practice. Moreover, since all own account trading relies upon the intermediary’s market intelligence and investment strategy, it is reasonable to regard revenue generated by this wider aspect of own account trading as equally linked to the primary activity of market making, because of its scope for spreading overheads and thereby contributing to a competitive narrowing of dealing spreads” (C.B. Wright (2000), “Recording the earnings from FX and securities dealing in the balance of payments and the national accounts”, Bank of England, pp.10/11).

In a wider context, account might also be taken of expenditure on training and acquisition of know-how in the formation of gross fixed capital. Money spent on training bank staff and money spent on developing special software could thus be considered as investment, as software and literary works currently are[10]. By enlarging the scope of «intangible fixed assets», the output generated by those assets would be counted as production by national accounts and there would no longer be an input of non-productive labour. However, this should be considered as a point of marginal importance in relation to the main areas of thoughts in this paper.

Conclusion

The preceding sections have shown that national accounts have to find answers to two questions:

• Since holding gains and losses have already an effect on the sequence of accounts, is there any appropriate way of including them?

• Is it possible to provide a more precise definition of the production of services in a post-industrial society.

The financial corporations sector provides a good illustration of the issue, since such corporations have to deal with both problems. Their activities are no longer dominated by the «classic» services, their activities are clearly targeted at making holding gains. However, thinking on this issue should not be confined to this particular sector. Holding gains and losses are having an increasing impact on the economic behaviour of all players in the global economy. Thus, the «wealth» effect associated with holding gains and losses may encourage households to increase their consumption expenditures. In these circumstances disposable income is no longer the only explaining factor for changes in spending patterns. There is therefore a need to go beyond the narrow context of financial intermediaries in considering how to define services in a modern society.

Ultimately, the question at issue is whether SNA93 takes sufficient account of the changes typical of an information and knowledge society such as our own. Some recent trends have already taken on a structural character, and the current conceptual framework sometimes has difficulty in reconstructing economic actuality in all its complexity. It would probably be a mistake to redraw the production boundary as such. Likewise, holding gains and losses, which have been the subject of much discussion, should not preclude wider thought on services as such. In these circumstances, it would be wise to associate representatives of corporations working in the services sector (consultant firms, banks, etc.) with the process. People working in the field are generally those who can best explain the structural changes taking place in their business. If an ad hoc group were to be set up to examine the definition of services in more depth, it should take into account the views of such specialists. In this way, national accounts would perhaps be better able to give a more accurate image of the real state of the economy, which is one of the main aims of such a statistical synthesis.

BRIEF BIBLIOGRAPHY

• Ananou, Th. (1997), Investissement et capital, Paris.

• Australian Bureau of Statistics (1996), The services of Financial Intermediairies or FISIM revisited. Paper submitted to the Joint UNECE/Eurostat/OECD meeting of national accounts, 30 avril-3 mai 1996.

• Banque nationale suisse (2000), Die Banken in der Schweiz, 1999, Zürich.

• Commission fédérale des banques (2000), Directives régissant l’établissement des comptes, Berne.

• European Communities(1996), The European system of national and regional accounts in the Community (ESA 1995), Brussels/Luxembourg.

• Hill, Peter (1997), Intangible assets, patents and copyrights in the 1993 SNA, SNA News and Notes.

• Hill, Peter (1998), Interest and inflation accounting. Paper submitted to the 25th Conference of the International Association for Research on Income and Wealth, Cambridge, August 1998.

• Hill, T.P. (1977), On goods and services, The Review of Income and Wealth, Number 4, December 1977, pp. 315-338.

• McCarthy, Paul (2000), Measuring holding gains in inventories. Paper submitted to the Joint UNECE/Eurostat/OECD meeting of national accounts, 26-28 avril 2000, Geneva.

• United Nations, International Monetary Fund (IMF), European Commission, Organisation for Economic Co-operation and Development (OECD), World Bank (1993), System of National Accounts 1993 (SNA93), Brussels/Luxembourg, New York, Paris, Washington D.C.

• Obst, Carl (1997), A note on banking output : Recent national accounts developments, OECD, Paris.

• Office fédéral de la statistique (1999), The calculation of productivity in national accounts – the situation in Switzerland. Paper submitted to the OECD meeting of national accounts experts, Paris, September 1999.

• Office fédéral de la statistique (2000), Changes in inventories and holding gains : the case of Switzerland during the years 1996-19988. Paper submitted to the Joint UNECE/Eurostat/OECD Meeting, 26-28 April 2000, Geneva.

• Office fédéral de la statistique (2001), La productivité du travail en Suisse, 1998, Neuchâtel.

• van de Ven, Peter (2000), Intangibles : Invaluables? Should the asset boundary in the 1993 SNA be extended, Voorburg. Document submitted to the 26th Conference of the International Association for Research on Income and Wealth, Cracow, September 2000.

• Wright, C. B. (2000) Recording the earnings from FX and securities dealing in the balance of payments and the national accounts, London.

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[1] Such as, for example, institutions that arrange hedging instruments (swaps, options, futures etc.) This subsector also includes corporations whose main function is to garantee, by endorsement, bills or similar instruments intended to be discounted or refinanced by financial enterprises.

[2] For example, securities brokers, loan brokers, flotation companies and insurance brokers.

[3] In short, «Financial enterprises consist of all those enterprises (i.e. institutional units as distinction from establishments) whose principal activity is classified under divisions 65, 66 and 67 of the International Standard Industrial Classification of all Economic Activities (ISIC Rev. 3)» (SNA93, §4.79).

[4] This simplified example presupposes that the bank doesn’t charge for management of deposits and loans.

[5] «The production of services must be confined to activities that are capable of being carried out by one unit for the benfit of another (SNA93, §6.9).

[6] See SNA93, §6.46 à §6.48.

[7] Defined as the ratio between value added by unit volume of labour participating in the production process.

[8] Indeed, specialised units make no distinction between the transactions done for customers and those done for the institution itself. It is not possible to extract a fraction of total labour input and consider it to be in relation with transactions done on behalf of customers only.

[9] Here it is supposed that the hived-off unit does not charge commission to third parties.

[10] This comment has been inspired by P. van de Ven „Intangibles: Invaluables? Should the asset boundary in the 1993 SNA be extended“ (26th IARIW General Conference, Session Number 2B, Balance Sheets, Paper 1, Cracow, 27 August-2 September 2000).

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Property

Transformation

Customer

Service provider

Contract

C

B

Bbbb

A

Object for which the service is provided

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