std/naes(2003)20  measuring the services of commercial banks in the nipas: changes in concepts and methods ====================

STD/NAES(2003)20

Measuring the Services of Commercial Banks in the NIPAs: Changes in
Concepts and Methods
=====================================================================
By Dennis J. Fixler, Marshall B. Reinsdorf, and George M. Smith
Michael Murphy, Bonnie Retus, and Shaunda Villones contributed to the
preparation of the estimates.
As part of the comprehensive revision of the national income and
product accounts (NIPAs) scheduled for release on December 10, 2003, a
definitional change will be introduced that recognizes the implicit
services of commercial banks to borrowers. This change is briefly
described in the June 2003 issue of the Survey of Current Business,
and some associated table changes are described in the August 2003
issue.1 This article provides a more detailed explanation of the new
measure of banking output and its effect on the NIPAs.
The revised measures of banks' implicit financial services will
improve the consistency of the NIPAs with the recommendations for the
treatment of banks in the 1993 System of National Accounts (SNA), the
principal international guidelines for national accounts.2 The Bureau
Of Economic Analysis (BEA) continues to be a leader in incorporating
major innovations of the SNA, such as chain-type indexes and the
recognition of software as investment. For banking, the SNA recommends
measuring implicit financial services to depositors using the
difference between a risk-free "reference rate" and the average
interest rate paid to depositors, and it recommends measuring implicit
services to borrowers using the difference between the average
interest rate paid by borrowers and the reference rate. To implement
this approach, BEA will measure the reference rate by the average rate
earned by banks on U.S. Treasury and U.S. agency securities. Measured
in this way, the reference rate is consistently above the average rate
of interest paid to depositors and consistently below the average rate
of interest paid by borrowers.
Background
----------
How to value bank output has been a topic of much discussion in the
national accounts literature because banks do not explicitly charge
for all the financial services that they provide, relying instead on
net receipts of interest for much of their revenue. In national income
accounting, interest payments are generally treated as a distribution
of income by businesses to investors who have provided them with
funds, not as a payment for services. In particular, the domestic
portion of the “net interest” component of national income is defined
as interest paid by private business less interest received by private
business. Applied to banks, the usual treatment of interest flows
would yield a negative contribution to national income. Moreover, much
of the value of the services that banks provide to their customers
would be missed by the NIPAs. To avoid these results, an imputation
for implicit financial services produced by banks is included in the
NIPAs. Depositors purchase these implicit services with imputed
interest income that eliminates the gap between the total interest
received by banks and the total interest paid by banks.3
The view that all the implicit services of banks go to depositors is
based on the notion that depositors are the ultimate lenders and that
the net interest belongs to them. This view, however, does not
adequately account for the implicit services of commercial banks to
borrowers in their role as financial intermediaries. In that role,
banks transform deposits into earning assets by providing many
financial services. In particular, banks provide services related to
the provision of credit that overcome problems of asymmetric
information and that transfer risk to the bank. Banks devote staff
time and other resources both to activities that serve depositors,
such as clearing checks, and to activities that serve borrowers, such
as making loan-underwriting decisions. Historically, banks were
virtually the only source of credit to many households and businesses,
and burgeoning needs for credit services were a major impetus for
growth of this industry. Accordingly, a measure of bank output should
reflect borrower services along with depositor services.
Interest margins as values of implicit services of banks
--------------------------------------------------------
By treating banks’ net interest income as imputed sales of services,
the NIPAs recognize that adjustments to interest rates are substitutes
for explicit fees to cover the cost of providing services to bank
customers. If the reference rate represents the rate that banks earn
on their investments after deducting expenses of providing services to
borrowers, banks could, in principle, charge depositors explicitly for
services and pay them the reference rate of interest. Similarly, banks
could charge borrowers explicitly for services that they receive and
reduce the rate of interest on loans to the reference rate. Indeed,
over the last two decades banks have substituted fee income for net
interest income: In 1980, net receipts of interest constituted 80
percent of commercial banks’ gross income (which does not reflect
taxes, noninterest expenses, loan-loss provisions, and gains or losses
on sales of securities), but in 2000, it constituted 58 percent of
banks’ gross income.4 Therefore, the exclusion of implicitly priced
services would result in a substantial overstatement of banks’ output
growth.
Rather than offsetting lower net interest margins by higher revenue
from fees for services, banks with low net interest margins may simply
provide fewer services. In these cases, interest rate differentials
represent an implicit price for financial services. For example, in
2002, an Internet bank with limited services paid an average rate of 4
percent on deposits while small conventional banks paid an average
rate of 3 percent.5 Depositors who chose the lower average deposit
rate in order to obtain more services from a conventional bank thus
paid an implicit price of 1 percent per year for those services.
Taking this logic one step further, depositors could dispense with the
services of a bank entirely and keep their money in securities paying
the reference rate of interest. Depositors who forego the opportunity
to earn the reference rate in order to obtain the services of a bank
choose to pay an implicit price for depositor services equal to the
margin between the reference rate and the deposit rate.
The reference rate also represents an opportunity cost in the banks’
investment decisions. If a highly liquid security with no credit risk
is available to banks, the banks forego the opportunity to earn this
security’s rate of return - assumed to be the reference rate - when
they invest in loans instead. The spread between this reference rate
of return and the lending rate is the implicit price that the bank
receives for providing financial services to borrowers, which include
the cost of bearing risk. The spread must equal the marginal cost of
providing borrower services if the bank is indifferent at the margin
between investing in the reference-rate asset and investing in higher
yielding loans. In a marketplace where competition keeps loans from
being priced at levels that yield economic profits (profits in excess
of a normal return on capital), we can expect an equilibrium where
banks are indifferent between investment opportunities at the margin.
Borrowers from banks are willing to pay a margin over the reference
rate because they require or want lender services that issuers of
credit-market instruments bearing the reference rate of interest do
not receive. For many, borrowing in capital markets is very costly or
impossible because of the problems of asymmetric information noted
earlier, and liquidating financial assets as an alternative to
borrowing is also impossible. However, for marginal loan customers,
liquidating assets that earn the reference rate or borrowing at
approximately the reference rate in capital markets are alternative
ways to obtain needed funds. In particular, both household and
business borrowers often choose to hold financial assets when they
could liquidate those assets and reduce their loan balances. For the
marginal users of the borrowed funds, the difference between the loan
rate and the reference rate represents the net marginal cost borne by
borrowers for liquidity management, inducing the bank to accept their
risk and any other services provided by the lender. This difference
can therefore be viewed as an implicit price paid for credit services.
Finally, if the bank’s net return on investments funded by deposits
equals the reference rate, then the implicit price that the bank
receives for providing services to depositors equals the spread
between the reference rate and the rate paid on deposits. This spread
equals the marginal cost of providing services to depositors if the
bank is indifferent to marginal changes in amounts on deposit. In the
short run, regulatory constraints on a bank’s growth based on the
amount of its equity capital could prevent it from accepting deposits
until it reaches the point of indifference; however, in a long run
competitive equilibrium for the industry, deposit rates will just
permit banks to cover their costs. In addition, large banks that are
perceived as very safe are able to borrow at approximately the
reference rate in securities markets, thereby avoiding the costs of
providing services to depositors. If these banks are indifferent at
the margin between raising funds from depositors and raising funds in
securities markets, the spread between the reference rate and the rate
paid on deposits must approximately equal the marginal cost of
providing services to depositors.
Theoretical framework
---------------------
According to the “user cost of money” framework set out in Donovan
(1978), Diewert (1974), and Barnett (1978) and applied to banking by
Hancock (1985), Fixler (1993), and Fixler and Zieschang (1999), the
reference rate plays an important role in models of economic decision
making by banks. The user cost of financial assets is an extension of
a concept originally developed for nonfinancial assets. In a
competitive marketplace where renting out a fixed capital asset yields
economic profits of zero, the rental payment or user cost, uct, must
equal the difference between the starting value of the asset, pt, and
the present value of the asset at reference rate of interest, rr, at
the end of the rental period, or pt+1/(1+rr). If the growth rate of
the asset’s value from period t to period t+1 reflects depreciation, t,
and an expected rate of increase in asset prices of t, then
substituting into the equation uct = pt – pt+1/(1+rr) yields
uct = pt[1 – (1 + t – t)/(1 + rr)]
= pt(rr – t + t)/(1 + rr). (1)
Alternatively, if uct is to be paid at the end of the period, then uct
= pt(rr – t + t).
A parallel expression for a user cost formula for a financial asset
with a rate of return of rA would equal the difference between its
immediate cash value in period t, assumed to be yAt, and the present
value of selling the asset for an expected price of yAt+1 = (1 + t) yAt
in period t+1 after receiving income of rAyAt. Here, trepresents both
changes in asset prices and, if the asset is a debt instrument,
expected changes in value due to creditworthiness developments. On the
assumption that the opportunity is available to earn a rate of rr on
an asset that requires no costly services to the borrower, including
the bearing of credit risk, rr measures the banks’ opportunity cost of
financial capital.6 Hence rr can be used as the discount rate to
calculate the present value of the future cash flows. The user cost of
holding an asset with a rate of return of rA then becomes:7
(2)
A modified version of the user cost expression on the right-hand-side
of equation (2) can be used to measure the implicit services
associated with financial assets of banks, such as loans. This version
of the user cost formula omits t, which represents expected net
holding gains. Changes in the market value of a debt instrument
usually have no effect on the value of the liability recognized by the
debtor, and the NIPAs must treat the creditor and the debtor
symmetrically. More importantly, holding gains and losses are excluded
from the concept of income measured by the national accounts, which is
limited to the income that originates from current production of goods
and services. Since credit losses can be treated as a kind of holding
loss, the effect of omitting t is significant.8
The user cost formula in equation (2) assumes that interest is paid at
the end of the period and that the asset and its user cost are valued
at the beginning of the period. In practice, interest flows occur
throughout the year, and measures of economic activity usually do not
use beginning-of-year present values for sales that occur at different
times over the course of the year. An alternative formula that values
the user cost as of the end of the period is consistent with these
practices. The end-of-period expression for the user cost of financial
assets is rr – rA (or, if the holding gains term is included, rr – rA
t ). In implementing the revised treatment of banks, average
interest rates will be calculated as ratios of interest accrued
throughout the year to the average value of assets over the course of
the year. In effect, these procedures adopt a mid-year perspective to
value both interest payments and assets, using a simple sum of
interest accruals to approximate a sum of interest accruals that are
discounted to the middle of the year. The product of the interest
rates and the asset values equals the total interest accrued over the
course of the year.
Typically, banks’ financial assets have negative user costs and their
liabilities have positive user costs because the rate of the return on
assets usually exceeds the reference rate, which in turn exceeds the
rate paid on liabilities. To make the signs more intuitive for our
purposes, we define the user-cost price of an asset as the negative of
the user cost, and we define the user-cost price of a liability as its
user cost. As a result, whenever a financial product contributes
positively to economic profits, its price is positive. Because holding
gains or losses are not part of the national accounts concept of
current production, the term in the user cost expression for expected
holding gains or losses is omitted from the user-cost price. The
arbitrary asset i then has a user-cost price of
pAi = rAi – rr. (3)
For liability products, the user-cost price is:
pLi = rr – rLi . (4)
These user-cost price formulas do not include a term for service
charges and other fees to borrowers or to depositors. For modeling
economic decision making by banks, fees to borrowers and to depositors
should be included in user-cost prices, but for measuring banks’
implicit sales of services, they should be treated as explicit sales.
Effect on the measure of imputed output
---------------------------------------
User cost of “own funds.” The gross output of banks consists of
explicit sales of services, which are booked as fee income, and
implicit sales of services, which are currently measured by banks’ net
interest income, or . Although the most important effect of
the revised treatment of the implicitly priced services is the
division of their value between borrowers and depositors, the revised
treatment also reduces the total measure of implicit services. This
reduction occurs because the difference between the total value of
loans and other interest-earning assets and the total value of
deposits and other interest-bearing liabilities is generally positive.
The SNA terms this difference “own funds” because banks use their own
funds to acquire the assets whose acquisition is not funded by the
issuance of liabilities. Own funds represent stockholders’ equity that
is held in financial assets, or money furnished directly or indirectly
(via retained earnings) by the banks’ stockholders.9
To show how the lending of banks’ own funds affects the revised
measure of implicit financial services, express the total imputed
output of banks, V, as the user-cost price of assets times the volume
of assets plus the user-cost price of liabilities times the volume of
liabilities, or
. (5)
In the last line of equation (5), the first term represents the value
of implicitly priced services that the bank provides to borrowers, and
the second term in equation (5) shows the value of the implicitly
priced services that it provides to depositors and other lenders to
the bank. A rearrangement of the terms in equation (5) reveals that V
equals the current NIPA measure of imputed output minus the user cost
of the own funds used to acquire assets:
. (6)
The difference between the current measure of banks’ imputed output
and the revised measure equals the user cost of the assets acquired
with banks’ own funds. When a bank lends its own funds instead of
funds from depositors, it does not need to use a portion of interest
that it receives to cover the cost of providing services to
depositors. Hence, less of the interest received from the borrower
represents implicit fees for services and more of it represents net
interest income earned by the bank. The measure of imputed output is
reduced by an amount that is broadly consistent with an SNA
recommendation that the return to lending of own funds be excluded
from imputed output.10
Defining assets and liabilities. The measure of own funds in equation
(6) is sensitive to which types of assets and liabilities are
included. Arguments are sometimes made that only loans and deposits
should be counted because banks have no control over other interest
rates. However, BEA’s measures of imputed bank output reflect all bank
assets and liabilities that earn interest or imputed interest.
(Imputed interest is earned by deposits.) As a result, substitution by
banks between different types of assets, or between different types of
liabilities, does not directly affect the measure of imputed output.
For example, loans rose from about one-third of financial assets in
1951 to about two-thirds of financial assets in 2001, while deposits
fell from almost 100 percent of liabilities to about 70 percent of
liabilities.
Inclusion of all interest-bearing assets and liabilities also results
in a better estimate of own funds used for lending. In particular,
banks generally have more deposits than loans, so if only these items
were counted, the estimate of own funds would generally be negative.
Negative own funds result in estimates of imputed output that exceed
the net interest received by banks. Since the justification for
imputed output rests on net interest being a substitute for fee
income, imputed output that is not “paid for” by net interest is hard
to justify.
A narrow definition of assets that excludes amounts loaned to other
banks or deposited at other banks can also lead to inconsistencies.
The estimate of the gross output delivered to the customers of the
banking industry should equal the value that could be calculated from
a consolidated balance sheet for the industry, which would net out
assets and liabilities that represent claims of one bank on another
bank. For example, federal funds and repurchase agreements (which are
combined in the data sources used for the estimates) are reported both
as assets and as liabilities by banks. Like deposits, their interest
rates are usually lower than the reference rate. The estimate of the
implicit services associated with federal funds and repurchase
agreements equals the user cost of the net liability position of the
banking industry, but it is calculated by including a negative number
for implicit services of federal funds and repurchase agreement gross
assets (which consist primarily of interbank transactions) that partly
offsets the positive number for implicit services of federal funds and
repurchase agreement gross liabilities.
Table 1 shows the assets and liabilities included in an illustrative
calculation of banks’ imputed output for 2001. In column 1 of the
table are average values for the year of major balance sheet items,
including those that have no role in the calculations of domestic
imputed output. One asset, “cash items in process of collection” is
displayed as a negative liability below deposits in order to show that
it is netted out from deposits when calculating implicit depositor
services. Items in process of collection are deducted from deposits
because, in an accrual-accounting framework, these funds belong to the
payee, not the check writer.
Column 2 in table 1 displays either the interest income or the
interest expense for the year, depending on whether the item is an
asset or a liability. Column 3 shows the book-value interest rate
implied by dividing the interest income or expense by the average
balance sheet value. Column 4 shows the user-cost prices, calculated
as the margin between the item’s interest rate and the reference rate
shown on line 8. Column 5 shows expansion factors needed to account
for domestic output of foreign banks, which are calculated using
ratios of balance sheet items for the total domestic banking industry
to corresponding items for domestic offices of banks chartered in the
United States. Column 6 shows the contribution to imputed output from
each included item, calculated as the product of the average balance
sheet value, the user-cost price, and the expansion factor for
foreign-owned offices.
The negative values for imputed output for assets associated with
interbank transactions on lines 12 to 15 of table 1 prevent the
implicit services that banks provide to each other from being included
in the output delivered to other kinds of customers. These negative
entries are offset elsewhere in table 1 by amounts included in imputed
output on liabilities or in implicit services from Federal Reserve
Banks. For example, the net output associated with Federal funds and
repurchase agreements is the difference between the positive entry in
the liability section of the table and the smaller negative entry for
the asset.
The implicit borrower services on loans and leases in lines 4–5 of
table 1 represent 41.9 percent of total imputed output. Implicit
services to depositors, calculated as the sum of the entries on lines
24–30 and the adjustments on lines 13 and 14, represent 54.3 percent
of imputed output or $101.3 billion. Further, the user cost of own
funds and foreign office deposits used for domestic lending on line 47
is $45.7 billion. This $45.7 billion can be decomposed into $19.9
billion from the user cost of own funds of U.S. banks, $23.7 for the
user cost of foreign office deposits used for domestic lending, and
$2.1 billion for the user cost of funds from foreign sources that
foreign banks lend domestically. Finally, a comparison of estimates of
imputed output with and without the adjustment for domestic offices of
foreign banks also shows that imputed output of $11.2 billion out of a
total of $186.6 billion originates in the foreign-owned banking
offices.
The assets of commercial banks also include balances due from Federal
Reserve Banks, which include required reserves. In exchange for the
user cost of these balances due (which equals the amount they would
have earned if they had been invested at the reference rate of
interest) banks are assumed to receive implicit services from the
Federal Reserve Banks of equivalent value. To be consistent, implicit
services from the Federal Reserve Banks are also imputed to the
Federal Government on Treasury deposits, to the rest of the world on
international deposits, and to business in connection with other
deposits. Therefore, the total imputed output of the Federal Reserve
Banks equals the user cost of their deposit liabilities; no output is
imputed in connection with their assets because these consist
primarily of securities that earn the reference rate of interest.11 In
the revised measures, the implicit services of Federal Reserve Banks
that are consumed by commercial banks are treated as an intermediate
input. Currently in the NIPAs, the output of the Federal Reserve Banks
is estimated by their expenses, and a portion of this output is
included in implicit services to customers of the banking industry.
Foreign output of U.S. banks and domestic output of foreign banks. The
primary data source for the estimates, the Federal Financial
Institutions Examination Council’s Call Reports, cover domestic and
foreign offices of banks chartered in the United States.12 Two
adjustments to the basic estimates from the Call Reports are therefore
necessary to estimate the domestic output of all banks. First, an
estimate of the output produced in the foreign offices of U.S. banks
must be deducted from U.S. banks’ total output. Second, the output of
U.S. offices of foreign banks must be added.
The output of foreign offices of U.S. banks is currently measured as
the excess of their interest receipts from borrowers over their
interest payments to depositors. In recent years, the interest rate on
loans in foreign offices has been roughly twice the rate on deposits,
and the amount of deposits has been roughly twice the amount of loans.
Consequently, interest received has approximately equaled interest
paid in the foreign offices, so virtually no imputed output has been
attributed to them.
In the revised measures of bank output, a significant amount of output
will be attributed to foreign offices of U.S. banks. The revised
measure of foreign office output equals the user cost of foreign
office loans plus the user cost of foreign office deposits. Therefore,
the increase in foreign office output equals the reference rate times
the excess of foreign office deposits over foreign office loans. The
excess deposits represent a source of funds for domestic lending that,
like own funds, involve no domestically produced implicit services to
depositors.
The output of U.S. offices of foreign banks is also affected by the
change in the definition of imputed output. The domestic output of
foreign banks is currently measured by scaling up the estimates of the
output of U.S. banks using ratios of balance sheet items for all
banking offices located in the U.S. to corresponding items for the
offices of U.S. banks alone. The implicit assumption—which is made
necessary by unavailability of data—is that the U.S. offices of
foreign banks pay and receive the same interest rates as other banks
in the United States. Rather than scaling up gross interest flows, the
new procedure will scale up user costs of assets and liabilities. This
will change the estimates of the domestic output of the foreign banks
because the assets that are attributed to foreign banks do not exactly
equal the liabilities. However, a more important source of revision to
these estimates will be revisions to the estimates of the balance
sheet ratios to incorporate new source data.
Measurement of interest rates
-----------------------------
Estimation of user cost measures of imputed output requires a number
of decisions about the specification of key concepts. One of these
decisions concerns interest rates. From a theoretical standpoint, the
use of either market interest rates or book-value interest rates can
be defended. The book-value rates are computed by dividing the
interest receipt or payment for a financial product by the book value
of that financial product on the balance sheet.
Market interest rates should be used in conjunction with the market
values of assets (whose use is sometimes called the “creditor
approach”), and book interest rates should be used in conjunction with
the book value of assets (the “debtor approach”). For most
interest-bearing assets, banks report book values rather than market
values. Perhaps for this reason, tests using market rates resulted in
excessively volatile estimates of implicit services to depositors and
to borrowers, including some negative values. In contrast, with
book-value rates, the user-cost prices of both loans and deposits are
consistently positive and behave plausibly. The variation over time in
relative positions of the book value reference rate, loan rate, and
deposit rate is shown in chart 1.
To compute the book-value reference rate, the interest received from
Treasury and Federal agency securities is divided by the average book
value of these securities over the period during which the interest
was received. This method of calculating the reference rate results in
estimates of zero for implicit borrower services consumed by the
Federal Government. Although imputing no borrower services to Federal
Government debt may seem inconsistent with imputing services to other
types of bond issuers, Federal debt imposes virtually no liquidity or
credit-risk costs on the bank. Letting implicit services for Federal
debt equal zero makes GDP invariant to the proportion of Federal debt
held by the banking sector.
Book-value interest rates for other assets and liabilities are
calculated similarly to the reference rate. However, interest income
from securities issued by state and local governments must be adjusted
to reflect its tax-exempt status. The interest expense on liabilities
used to fund purchases of these securities may be completely
deductible, 80-percent deductible, or nondeductible, depending on the
nature of the issuer and the data of purchase of the security. If the
interest expense is completely deductible, then
taxable-equivalent rate = .
Beginning with 1985, adjustments for taxable equivalency are from the
Federal Reserve Board. For earlier years, adjustments are calculated
using the above formula, with banks’ average tax rate serving as a
proxy for their marginal rate and an assumption that the user-cost
price of state and local securities is nonnegative.
Effect on GDP and on gross domestic income
------------------------------------------
As discussed above, the revised measure of banks’ imputed output will
be lower than the current measure. The amount of the reduction caused
by the change in the definition of the imputed output equals the sum
of (1) the user cost of own funds; (2) the user cost of foreign office
deposits available for domestic lending; and (3) part of the change in
the estimate of imputed output of domestic offices of foreign banks.
GDP will fall more than the imputed output of financial intermediaries
will fall, because intermediate consumption will absorb some output
that is currently counted in final demand. Implicit services count as
intermediate consumption when consumed by businesses, household
owner-occupiers, or nonprofit institutions serving households, and
these sectors are the primary borrowers from banks. Consequently, when
imputed output that is currently allocated to depositors is instead
allocated to borrowers, some imputed output will shift from final
demand to intermediate consumption.
While the recognition of borrowers’ implicit services reduces the
importance of banks’ imputed output to GDP, it also opens up a new
channel of influence on the rate of change of current-dollar GDP. In
chart 1, the reference rate is sometimes closer to the asset rate,
implying that borrowers received a smaller share of implicit financial
services, but at other times, it is closer to the liability rate.
Although trends in the split of implicit services between borrowers
and depositors are meaningful, short-run fluctuations of this split
may not reflect equilibrium behavior. Because the reference rate
demonstrates more inertia than the other rates, abrupt declines in
interest rates tend to result in a temporary reclassification of
imputed output from intermediate consumption (by borrowers) to final
demand (by depositors), first raising and then lowering the growth
rate of GDP. Abrupt increases in interest rates have the opposite
effect. The Treasury and Federal agency securities that furnish the
reference rate tend to have rates that are fixed for longer periods
than the rates paid on liabilities and the rates earned on loans.
Nevertheless, this troublesome effect is expected to be small, and it
will have almost no effect on real growth rates.
The revision in the measure of imputed output will change gross
domestic income (GDI) by the same amount as it changes GDP. Imputed
expenditures on financial services by households, by government, and
by the rest of the world, which raise GDP, are matched by imputed
interest flows, which raise GDI. Imputed expenditures by business have
no effect on GDP because they are intermediate inputs, and imputed net
interest payments by businesses to banks do not affect GDI because
banks are also in the business sector.
Even though the balance between GDI and GDP will be unaffected by the
revision, some elements of the calculation of the interest component
of GDI will change. To be consistent with the guidelines of the SNA,
the implicit services provided by banks to borrowers will be shown as
a negative amount of imputed interest paid by borrowers.13 The sum of
monetary interest and imputed interest paid by borrowers, which is the
total amount of interest paid by borrowers, will therefore decline. In
effect, a portion of the interest paid by borrowers will be
reclassified as a payment for implicit services; borrowers’ imputed
expenditures on services will rise by the same amount that their
payments of interest fall. Note that negative imputed interest paid by
nonbusiness borrowers to banks increases the “net interest” component
of GDI in the same way as positive imputed interest paid by banks to
nonbusiness customers.
Effects on quantity and price indexes
-------------------------------------
To estimate changes in the real value of imputed output, BEA will
continue to use the method that it adopted in 1999. Thus, the rates of
change of real total output and of real explicitly priced output will
not be revised because of the change in the treatment of banking.
However, the level of real total output and real imputed output will
be revised for all years to reflect the revised level of
current-dollar imputed output in the base year. In addition, the
revisions to the weight of explicitly priced output will cause
revisions in the rate of change of real imputed output because real
imputed output is estimated as a residual.
Annual changes in the real value of banks’ imputed output are
estimated beginning with 1968 by assuming that banks’ total output
grows at the same rate as the output of the banking industry in the
Bureau of Labor Statistics (BLS) estimates of productivity by
industry. The BLS estimate of banks’ total output is based on a
weighted average of various indexes of bank activity, including bank
transactions (for example, checks cleared, ATM transactions, and
electronic funds transfers), the number of outstanding loans of
various types, and the number of trust accounts.14 To estimate
chain-dollar real imputed output, BEA calculates a Fisher aggregate of
a Laspeyres constant-dollar measure and a Paasche constant-dollar
measure. Each constant-dollar measure of banks’ imputed output equals
(a) the constant-dollar value of banks’ total output, estimated by
extrapolating the base-year current-dollar estimate of banks’ total
output by the BLS estimate of the growth in banks’ total output less
(b) the constant-dollar real value of banks’ explicitly priced output,
estimated by deflating banks’ service charges on deposit accounts and
other noninterest income with the CPI for checking account and other
bank services and then adding an estimate of banks’ real fiduciary
activities based on the growth of the number of trust department
discretionary accounts.
Prior to 1968, annual changes in the real value of imputed output will
continue to reflect the rate of growth in the hours worked by banks’
employees with no adjustment for changes in these employees’
productivity. Annual changes in the real value of explicitly charged
output will continue to reflect the post-1968 methodology, and annual
changes in the real value of total output will continue to equal the
sum of changes in real imputed output and real explicitly priced
output.
Results for 2001
----------------
Table 2 shows the breakdown by sector and by legal form of
organization of the consumption of commercial banks’ imputed output.
As a result of the revision, the imputed output of commercial banks
included in GDP falls by $91.9 billion. A rise in intermediate
consumption rises from about a fourth to about half of the total
consumption of implicit services accounts for $22.8 billion of the
fall in GDP. Borrower services to household owner-occupants and
nonprofit institutions account for much of this rise, but borrower
services to corporations and to sole proprietorships and partnerships
also contribute.
The remaining $69.1 billion of the fall in GDP reflects a fall in
imputed domestic output. One source of the fall in imputed domestic
output is a $13.0 billion fall in imputed output of U.S. offices of
foreign banks attributable to revisions in estimates these offices’
assets and liabilities.15 The other source is the $56.0 billion change
in imputed domestic output attributable to the adoption of the
reference rate approach, which consists of: (1) a $13.4 billion fall
in imputed output of U.S. offices of foreign banks; (2) an $18.9
billion fall in the total imputed output of U.S. banks; and (3) a
$23.7 billion rise in the portion of the imputed output of U.S. banks
allocated to their offshore offices.
Table 3 shows how the downward revision to GDP and GDI for 2001
affects the new seven-account summary of the NIPAs.16 The product side
of account 1 shows that the $91.9 fall in GDP consists of a reduction
of $78.1 billion in implicit services to persons, a reduction of $8.9
in net exports of implicit services, and a reduction of $4.9 in
implicit services to governments. On the income side, the net
operating surplus of private enterprises falls by $91.9 billion.17
Account 2 shows the effect on the sources and uses of private
enterprise income, which includes income of private businesses,
imputed income from owner-occupied housing, and net interest paid by
nonprofit institutions serving households. Imputed interest paid by
banks to depositors falls by $147.5 billion, and private enterprises
borrowers pay –$64.8 billion in imputed interest to banks. (As is
explained above, implicit banking services to borrowers are shown as
negative imputed interest paid by borrowers.) Private enterprises will
also receive $120.4 billion less in imputed interest, consisting of a
reduction of $42.0 billion in imputed interest received by private
enterprises on deposits and a new entry of –$78.4 billion representing
imputed interest received by banks from borrowers. Hence, net interest
paid by private enterprises falls by $91.9 billion, and GDI also falls
by this amount.
Account 3, the personal income and outlay account, shows that the
$78.1 billion reduction in personal consumption expenditures consists
of a $90.1 billion reduction in implicit services to depositors that
is partly offset by the new entry for implicit services to borrowers
of $12.0 billion. Account 5, the foreign transactions current account,
shows that the $8.9 billion decrease in net exports of implicit
services shown in account 1 consists of a decrease of $10.3 billion in
imputed interest received by foreign depositors that is partly offset
by imputed interest of –$1.4 billion received from foreign borrowers.
(Imputed interest on foreign borrowing excludes loans booked in
foreign offices of U.S. banks because production in these foreign
locations does not belong in U.S. domestic product.) Accounts 6 and 7
show that measures of saving, investment, and net lending to the rest
of the world are unaffected by the revised treatment of implicit
services of banks.
Future Research
---------------
The new measures of implicit services to bank borrowers are an
important advance for the NIPAs. Nevertheless, many questions remain
for future research. One question is how to treat off-balance sheet
commitments, such as derivatives. Another is whether improvements are
possible in the measures of real bank output. A third important
question concerns the treatment of expected holding gains and losses
and of credit losses.18 An allowance for credit losses is deducted
from the value of loans and leases in calculating imputed output in
order to place the timing of the recognition of these losses on an
accrual basis. However, credit losses are not directly reflected in
the measures of interest income that are used to calculate imputed
output. If banks use a portion of interest income to offset credit
losses, that portion is not available to pay for financial services.
Furthermore, estimates of expected losses will be excluded from the
measure of imputed output elsewhere in the revised NIPAs; see the
discussion of insurance in Moulton and Seskin (2003), 19-21.
Box: Effect on GDP by Industry and on Gross State Product
---------------------------------------------------------
The changes in the methods for measuring banks’ imputed output and for
allocating it to bank customers will affect the estimates of GDP by
industry. GDP by industry measures the contribution of each private
industry and of government to the Nation’s GDP. It equals an
industry’s value added. For any private industry, GDP by industry is
defined as gross output (which consists of sales or receipts and other
operating income, commodity taxes, and inventory change) less
purchases of intermediate inputs (which consist of energy, raw
materials, semi-finished goods, and services, including services of
banks.).
Identifying inputs and outputs is less straightforward for banking
than it is for most industries.19 In the NIPA treatment, banks use
primary and intermediate inputs to produce the financial services that
constitute their output. Financial products such as deposits and loans
are packages of financial services; thus deposits, though an inflow to
banks, are not an input. The implicitly priced services associated
with financial products are the banks’ output, along with the services
that carry explicit fees.
The changes in the treatment of the banking industry will not affect
banks’ purchases of intermediate inputs, so the change in this
industry’s value added will equal the change in its gross output. For
other private industries, intermediate inputs will rise, reducing
value added. Private industries consume relatively more borrower
services than households and government, so their consumption of
implicit services of banks will be higher when services currently
shown as going to depositors are allocated to borrowers. Under the new
treatment of government (described in Moulton and Seskin (2003),
30-31), GDP by industry for general government will not change, but
government consumption expenditures and government gross output will
fall by an amount equal to the reduction in governments’ final
purchases of banks’ imputed output. For the economy as a whole, the
increase in intermediate consumption of private industries will
generally have a larger affect on GDP than the reduction in banks’
total imputed output.
These revisions to GDP by industry will be reflected in revised
estimates of gross state product (GSP). GSP measures the value added
in production by the labor and property located in a State, and is
controlled to national estimates of GDP by industry. GSP for a State
is derived as the sum of the GSP originating in all industries in the
State.
References
----------
Anderson, Richard G., Jones, Barry E. and Nesmith, Travis D (1997a),
“Monetary Aggregation Theory and Statistical Index Numbers” Federal
Reserve Bank of St. Louis Review, January/February 1997, pp. 31-52.
Anderson, Richard G., Jones, Barry E. and Nesmith, Travis D. (1997b),
“Building New Monetary Services Indexes: Concepts, Data and Methods.”
Federal Reserve Bank of St. Louis Review, January/February 1997, pp.
53-82.
Barnett, W., (1978), “The User Cost of Money,” Economic Letters, 2,
145-49. Reprinted in William A. Barnett and Apostolos Serletis (2000),
The Theory of Monetary Aggregation, North Holland, Amsterdam.
Barnett, W. (1980), “Economic Money Aggregates, Journal of
Econometrics, 14, 11-48. Reprinted in William A. Barnett and Apostolos
Serletis (2000), The Theory of Monetary Aggregation, North Holland,
Amsterdam.
Berger, Allen and Humphrey, David (1992) “Measurement and Efficiency
issues in Commercial Banking” in Output and Measurement in the Service
Sector, Studies in Income and Wealth Vol. 56, Zvi Griliches, editor,
University of Chicago Press (for the National Bureau of Economic
Research.)
Carlson, Mark and Perli, Roberto. “Profits and Balance Sheet
Developments at U.S. Commercial Banks in 2002,” Federal Reserve
Bulletin (June 2003): 243-270.
Commission of the European Communities, Report from the Commission to
the Council and the European Parliament Concerning the Allocation of
Financial Intermediation Services Indirectly Measured (FISIM), Mimeo,
2002.
Commission of the European Communities, Commission Regulation (EC) No
1889/2002 of 23 October 2002 on the implementation of Council
Regulation (EC) No 448/98 completing and amending Regulation(EC) No
2223/96 with respect to the allocation of financial intermediation
services indirectly measured (FISIM) within the European System of
national and regional Accounts (ESA).
Commission of the European Communities, International Monetary Fund,
Organisation for Economic Co-operation and Development, United
Nations, and World Bank (1993), System of National Accounts 1993,
Brussels/Luxembourg, New York, Paris, Washington, D.C.
Diewert, W.E., (1974), “Intertemporal Consumer Theory and the Demand
for Durables,” Econometrica, 42, 497-516
Donovan, D., (1978), “Modeling the Demand for Liquid Assets: An
Application to Canada,” IMF Staff Papers, 25, 676-704
Fixler, D., (1993), “Measuring Financial Service Output of Commercial
Banks,” Applied Economics, 25, 983-99
Fixler, D and B. Moulton, “Comments on the Treatment of Holding Gains
and Losses in the National Accounts,” OECD Meeting of National
Accounts Experts, October 2001, Paris.
Fixler, D., and K. Zieschang, (1999), “The Productivity of the Banking
Sector: Integrating Financial and Production Approaches to Measuring
Financial Service Output,” Canadian Journal of Economics, 32, 547-569
Hancock, D., (1985), “The Financial Firm: Production with Monetary and
Non Monetary Goods,” Journal of Political Economy, 93, 859-80
Mayerhauser, Nicole, Shelly Smith, and David F. Sullivan. 2003.
"Preview of the 2003 Comprehensive Revision of the National Income and
Product Accounts: New and Redesigned Tables." Survey of Current
Business 83 (August):7-31.
Moulton, Brent R., and Eugene P. Seskin, “Preview of the 2003
Comprehensive Revision of the National Income and Product Accounts:
Changes in Definitions and Classifications” Survey of Current Business
83, June 2003.
Kunze, Kent, Mary Jablonski and Mark Sieling, “Measuring Output and
Labor Productivity of Commercial Banks (SIC 602): A Transactions-based
Approach”, presented at the Brookings Institution Workshop on Banking
Output, Washington, DC, November 20, 1998
.
Table 1. - Revised Computation of Imputed Output, Commercial Banks in
U.S., 2001
(Billions of dollars)
(1)
(2)
(3)
(4)
(5)
(6)
Average
Interest
Income or
Average
rate of
Average
user cost
Ratio of All Banks in U.S. to
Imputed
balance
expense
interest
price
U.S.-chartered
gross
2001
2001
(2) / (1)
(3) - 6.24%
banks in U.S.1
output
Balance sheet item
(1 x 4) x (5)
1
Total assets
6034.5
2
Loans & leases, net of allow. for losses and unearned income
3757.8
312.5
3
Domestic offices
3487.6
288.1
4
Loans
3341.0
278.3
8.33
2.09
1.107
77.3
5
Leases
146.6
9.8
6.72
0.48
1.107
0.8
6
Foreign offices
270.2
24.4
7
Investment securities, book value
1042.5
8
Treasury sec. & U.S. Gov't agency oblig. (in MBS's)
736.8
46.0
6.24
0
1.102
9
Other securities, book value (interest includes adjustment
of 2.1 for taxable-equivalence)
305.7
19.2
6.28
0.04
1.325
0.2
10
Cash & all balances due from depository institutions
251.2
11
Currency and coin, domestic offices
38.1
12
Balances due from the Federal Reserve, dom. offices
24.8
0
0
-6.24
1.000
-1.5
13
Other balances due from depository institutions
54.8
0
0
-6.24
1.154
-3.9
14
Interest-bearing balances due from depository inst.
133.5
5.4
4.01
-2.23
1.154
-3.4
15
Federal funds sold and sec.purch. under agree.to resell
327.3
12.7
3.87
-2.37
1.097
-8.5
16
Trading account assets
150.4
9.5
6.34
0.10
1.080
0.2
17
Other real estate
3.5
18
Bank premises and equipment
76.3
19
Intangible assets
113.1
20
All other assets
312.4
21
Total liabilities
5703.8
22
Total deposits
4169.2
132.5
23
In domestic offices
3519.5
106.9
26
Demand deposits
506.6
0.0
0.00
6.24
1.017
32.1
27
Interest-bearing deposits
3012.9
106.9
28
Other checkable deposits
155.9
3.1
1.96
4.28
1.001
6.7
29
Savings (including MMDA's)
1522.0
33.3
2.19
4.05
1.001
61.7
30
Large time deposits
549.6
27.7
5.05
1.19
1.690
11.1
31
Other time deposits
785.3
42.7
5.44
0.80
1.001
6.3
32
LESS: Cash items in process of collection
-129.2
0
0
6.24
1.154
-9.3
33
In foreign offices
649.7
25.6
34
Borrowed funds
1131.7
56.4
35
Federal funds purch. & sec.sold under agreemt. to repurch.
510.7
19.6
3.84
2.40
1.064
13.0
36
Other interest-bearing liabilities
621.1
36.8
5.93
0.31
1.296
2.5
37
Other liabilities
402.8
38
Total equity capital
330.7
39
PLU.S.: Implicit services from Federal Reserve Banks
1.5
1.5
40
EQUALS: Total Imputed Output
186.6
Addenda:
41
Assets used to calculate imputed output, U.S. banks2,3
5221.0
380.8
7.29
1.06
56.6
42
Liabilities used to calculate imputed output, U.S. banks3,4
4522.0
163.3
3.61
2.63
118.9
43
Net interest income / Total imputed output, U.S. banks3
217.0
175.5
44
PLU.S.: User cost of own funds and foreign office funds used for
domestic lending, U.S. chartered banks
699.0
6.24
43.6
45
EQUALS: Net interest income U.S. chartered banks
215.5
46
Assets used to calculate imputed output, inc. foreign banks2
5840.8
425.5
7.29
1.05
62.5
47
Liabilities used to calculate imputed output, inc. foreign banks
5108.4
194.6
3.81
2.43
124.1
48
Net interest income / Total imputed Output, inc. foreign banks
230.9
186.6
49
PLU.S.: User cost of own funds and foreign office funds used for
domestic lending, inc. foreign banks
732.4
6.24
45.7
50
EQUALS: Net interest income, inc. foreign banks
232.3
1. Ratios are for (by line): Loans and leases (4 & 5); Securities
other than U.S. gov't securities in bank credit (10);
Cash assets (13, 14, 15, 33); Interbank loans (16); Other assets (17);
Transaction deposits (27);
Nontransaction deposits other than large time deposits (29, 30, 32);
Large time deposits (31);
Borrowings from banks in the U.S. (36); Borrowings other than from
banks in the U.S. (37).
2. Sum of lines 4-5,8-9,and 12-16. Line 39, which represents imputed
interest from Federal Reserve Banks, is also included in imputed gross
output.
3. Imputed gross output shown excludes the effect of the adjustment
for foreign banks using the factors in column (5).
4. Sum of lines 26, 28-32, 35 and 36.
Table 2
Consumption of Imputed Output of Commercial Banks by Sector and Legal
Form of Organization, 2001
(Billions of dollars)
Based on
User Costs
Currently Published
Revision
in Level
Total
186.6
255.7
-69.1
Final demand
93.6
185.5
-91.9
Persons
78.8
156.9
-78.1
Federal Government1
0.3
0.8
-0.5
State & local governments1
5.1
9.6
-4.5
Rest of the world
9.4
18.3
-8.9
Intermediate demand
93.0
70.2
22.8
Corporate
52.5
51.3
1.7
Financial
7.3
9.9
-2.6
Nonfinancial
45.2
41.3
3.9
Sole Prop. and Partnerships
20.3
18.8
1.5
Farm
1.6
1.0
0.6
Nonfarm
18.6
17.8
0.8
Other Private Business
2.4
0.1
2.3
Households and Nonprofit Institutions
17.8
0.0
17.8
1. In the comprehensive revision, the value of the services produced
by general government, which represents governments’ contribution to
final demand, will be estimated by the cost of inputs, including
purchases of implicit output of banks. The revised treatment of
banking will indirectly reduce the services produced by general
government because purchases of implicit output of banks will be
reduced. Final demand of general government, which will equal the
services produced by governments less their sales of services in the
market, will also reflect the downward revision to governments’
purchases of implicit output of banks.
(Billions of dollars)
Account 1. Domestic Income and Product Account, Proposed less
published estimates
Net operating surplus
-91.9
Personal consumption expenditures
-78.1
Private enterprises
-91.9
Implicit services furnished by financial intermediaries
-78.1
Imputed interest paid
-212.3
By banks to depositors
-147.5
Net exports of goods and services
-8.9
By borrowers to banks1
-64.8
Exports
-8.9
Less: Imputed interest received
-120.4
Implicit services furnished by financial intermediaries
-8.9
By depositors from banks1
-42.0
By banks from borrowers
-78.4
Government consumption expenditures and gross investment
-4.9
Federal
-0.4
Gross domestic income
-91.9
Implicit services furnished by financial intermediaries
-0.4
State and local
-4.4
Statistical discrepancy
0.0
Implicit services furnished by financial intermediaries
-4.4
GROSS DOMESTIC PRODUCT
-91.9
GROSS DOMESTIC PRODUCT
-91.9
1. Includes domestic business, owner-occupied housing, and nonprofit
institutions serving households.
Account 2. Private Enterprise Income Account, Proposed less published
estimates
IIncome payments on assets
-212.3
Net operating surplus, private enterprises
-91.9
Interest and miscellaneous payments
-212.3
Income receipts on assets
-120.4
Interest payments
-212.3
Interest receipts
-120.4
Imputed interest
-212.3
Imputed interest 1/
-120.4
By borrowers to banks
-64.8
By banks from borrowers
-78.4
By banks to depositors
-147.5
By other private enterprises on deposits
-42.0
U.S.ES OF PRIVATE ENTERPRISE INCOME
-212.3
SOURCES OF PRIVATE ENTERPRISE INCOME
-212.3
Account 3. Personal Income and Outlay Account, Proposed less published
estimates
Personal current taxes
0.0
Personal income receipts on assets
-90.1
Personal outlays
-90.1
Personal interest income
-90.1
Imputed interest income
-90.1
Personal consumption expenditures
-78.1
On deposits
-90.1
Implicit services furnished by financial intermediaries
-78.1
Personal interest payments
-12.0
Imputed interest paid
-12.0
To banks on borrowed funds
-12.0
Personal saving
0.0
PERSONAL TAXES, OUTLAYS, AND SAVING
-90.1
PERSONAL INCOME
-90.1
Account 4. Government Receipts and Expenditures Account, Proposed less
published estimates
Consumption expenditures
-4.9
Income receipts on assets
-5.0
Implicit services furnished by financial intermediaries
-4.9
Interest and miscellaneous receipts
-5.0
Federal
-0.4
Interest receipts
-5.0
State and local
-4.4
Imputed interest received
-5.0
On deposits
-5.0
Interest payments
-0.2
Federal
-0.4
Imputed interest paid
-0.2
State and local
-4.6
To banks on borrowed funds
-0.2
Federal
0.0
State and local
-0.2
GOVERNMENT CURRENT EXPENDITURES AND NET SAVING
-5.0
GOVERNMENT CURRENT RECEIPTS
-5.0
Account 5. Foreign Transactions Account, Proposed less published
estimates
Exports of goods and services
-8.9
Income payments to the rest of the world
-10.3
Services
-8.9
Income payments on assets
-10.3
Implicit services furnished by financial intermediaries
-8.9
Interest payments
-10.3
Imputed interest received by the rest of the world
-10.3
Income receipts from the rest of the world
-1.4
On deposits
-10.3
Income receipts on assets
-1.4
Imputed interest paid by the rest of the world
-1.4
To banks on borrowed funds
-1.4
CURRENT RECEIPTS FROM THE REST OF THE WORLD
-10.3
CURRENT PAYMENTS TO THE REST OF THE WORLD
-10.3
AND BALANCE ON CURRENT ACCOUNT
Account 6. Domestic Capital Account, Proposed less published estimates
GROSS INVESTMENT, CAPITAL, TRANSFERS, AND NET LENDING
0.0
GROSS SAVING AND STATISTICAL DISCREPANCY
0.0
Account 7. Foreign Transactions Capital Account, Proposed less
published estimates
BALANCE ON CURRENT ACCOUNT, NIPAS
0.0
CAPITAL TRANSFERS (NET) AND NET LENDING, NIPAS
0.0
Components may not add up to totals shown because of rounding.

1Brent R. Moulton and Eugene P. Seskin, “Preview of the 2003
Comprehensive Revision of the National Income and Product Accounts:
Changes in Definitions and Classifications” Survey of Current Business
83, June 2003: 24-27; and Nicole Mayerhauser, Shelly Smith, and David
F. Sullivan, “Preview of the 2003 Comprehensive Revision of the
National Income and Product Accounts: New and Redesigned Tables”
Survey of Current Business 83, August 2003: 21.
2Commission of the European Communities, International Monetary Fund,
Organisation for Economic Cooperation and Development, United Nations,
and World Bank, System of National Accounts 1993 (Brussels/Luxembourg,
New York, Paris, and Washington, DC, 1993).
3Many European countries currently treat the implicit financial
services of banks as an intermediate input to a fictitious sector,
thereby keeping them out of GDP.
4The percentages are calculated from data from the Federal Deposit
Insurance Corporation at www2.fdic.gov/hsob/. The growth of fee income
partly reflects banks’ entry into new kinds of activities, but the
trend predates the repeal in 1999 of the Glass-Steagall Act’s
restrictions on bank activities.
5This example is based on individual bank data at
www3.fdic.gov/idasp/main.asp.
6Barnett (1978) describes the reference rate as a minimum rate of
return that accounts for risk, but most applications of the reference
rate, including the 1993 SNA, view it as a risk-free rate.
7Barnett (1978) uses a different approach to derive equation (2). He
considers a consumer who maximizes life cycle utility subject to a set
of budget constraints that the change in wealth in any period equals
current income received minus current expenditures and who is able to
invest in an instrument that earns the reference rate of return.
8Since 1974, commercial banks’ provision for credit losses has usually
ranged from about 10 percent to about 20 percent of their net interest
income. These ratios are calculated using data from the Federal
Deposit Insurance Corporation, available at www2.fdic.gov/hsob/.
Realized net credit losses have been slightly lower than provisions
for credit losses, partly because of timing differences and
survivorship bias.
9However, the measure of banks’ lending of own funds differs from the
accounting entry for stockholders’ equity on banks’ balance sheets
because own funds do not reflect all the assets and liabilities
reflected in stockholders’ equity.
10SNA 1993, paragraph 6.125.
11Fee-based services to commercial banks are also part of the gross
output of Federal Reserve Banks. However, as intermediate consumption,
they are not recorded in GDP. These fees also have no effect on GDI,
because they reduce the profits of commercial banks but increase in
the profits of the Federal Reserve Banks — which are also included in
the corporate sector — by an offsetting amount. Federal Reserve System
profits are measured by current net earnings less expenses for the
Board of Governors, currency costs, and implicit commission expenses.
Profits after tax exclude Federal Reserve System payments to the U.S.
Treasury, which are effectively treated as taxes.
12Beginning with 1985, the Call Report data are adjusted by the Board
of Governors of the Federal Reserve System to take account of mergers;
see Carlson and Perli, (2003). Call Report data for 1984 and earlier
are taken from the Federal Deposit Insurance Corporation, Historical
Statistics on Banking, at www2.fdic.gov/hsob/.
13SNA 1993, Annex III, paragraphs 5-7.
14The BLS methodology is explained in Kent Kunze, Mary Jablonski, and
Mark Sieling (1998). BLS does not have a separate measure of the
imputed output of banks.
15Note that this revision would have occurred even without the change
in the treatment of banks.
16In the comprehensive revision of the NIPAs, the traditional five
summary accounts will be expanded to seven accounts; see Mayerhauser,
Smith and Sullivan (2003), 8-15.
17Net operating surplus is a measure of business income that equals
gross value added less the costs of compensation of employees, taxes
on production and imports—that is, indirect taxes such as sales and
property taxes—less subsidies, and consumption of fixed capital;
financing costs, such as net interest, and business transfers are not
subtracted.
18See Fixler and Moulton (2001).
19There is a considerable literature on the identification of inputs
and outputs in banking, and the choice of a classification framework
depends on the measurement question to be addressed. For examples of
different frameworks, see Allen Berger and David Humphrey (1992).
0

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