FISIM Accounting

In the System of National Accounts (SNA), the output of financial intermedation services is the sum of directly and indirectly measured components. This paper considers the second, “financial intermediation services indirectly measured” (FISIM) component, analyzing FISIM in a series of rearrangements of a cash flow identity facing any enterprise with financial instruments on its balance sheet. Our framework encompasses essentially all versions of the SNA, the user cost of money approach to financial services pioneered by Diewert (1974), Barnett (1978, 1980), Donovan (1978), and Hancock (1985), and recent analyses by Basu, Inklaar, and Wang (2011) and Colangelo and Inklaar (2012). The paper argues that the SNA’s “reference rate of interest” for calculating FISIM output is the Modigliani-Miller (1958) cost of capital, that SNA FISIM then comprises three computable components—account servicing, asset management, and risk intermediation—and that allocating FISIM to institutional sectors and thus to its intermediate and final uses should follow a “funders pay the spread” principle similar in spirit to the 1953 version of the SNA. The paper characterizes the differing views on the SNA’s inclusion of maturity and risk premia in FISIM as taking different approaches to the treatment of FISIM’s risk intermediation component