Financial Accounts in Iceland
Methods and Results
» Brief economic background of importance for the financial
development in Iceland and for understanding the development of
financial accounts
» What are financial accounts
» Compilation and preparation of financial accounts, methodology,
valuation, reconciliation, source data, etc.
» Results and interpretations of financial accounts
» The use of financial accounts or flow-of-funds accounts for
economic analysis
The economic development in Iceland
A short background of the Icelandic economy before looking at the development of the financial
accounts:
»
In 2003, the Central bank lowered the reserve requirement for the ICE banking system from 4
percent to 2 percent, in accordance with European rules. The lending capacity of banking system
was increased by around one GDP.
»
In 2003, the banking system was dominated by three banks; two state owned and one private. The
state banks were privatized 2003 and sold to favorable partners who had not much banking
experiences.
»
In the parliament spring election 2004, one of the political parties promised to increase the loanto-value ratio of the State Housing Fund to 90% if it came into power. This promise was
introduced in August 2004.
»
Inflationary pressures => policy rate increasing (5.3% May 2004 to 14,3% March 2007) => bank
credit growth fuelled by the carry-trade capital inflows attracted by high yields => appreciated
ISK krona and falling import prices fuelled private consumption demand.
»
Low international interest rates => Icelandic firms borrowed in foreign currency at low rates
»
Wealth effects, portfolio effects, easy capital, etc.
The Main Price Indices 1995-2013
The GDP in fixed prices (2005) and GDP growth
Rest of
the
world NPISH
SNA: Intergrated System
HH
GG
FC
Uses
NFC
NFC
FC
Current Accounts
GG
HH
Rest of
the
NPISH world
Resources
Production account
Income account
Distribution of income account
Primary distribution of income account
Secondary distribution of income account
Redistribution of income in kind account
Use of income account
Saving net
Changes
in Assets
Accumulation Accounts
Changes in
Liabilities & NW
Capital account
Net lending/borrowing
Financial account
Assets
Balance Sheet
Liabilities &
Net Worth
GFSM 2001
Transactions
Relationshipsbe
tween GFSM
2014 and ESA
2010
ESA10
SNA’08
Transactions
Revenue
account
Production
account
Expense
account
Income
account
Operating balance
GDP (value added)
Saving
Capital
transfers &
Non-financial
assets
Non-financial
assets
Other
economic
flows
Financial
assets &
liabilities
Closing
balance
sheet
Other
economic
flows
Financial
assets &
liabilities
Net lending / borrowing
Closing
balance
sheet
Full system of financial accounts
Stocks at
the
beginning of
the period
(Opening
balance)
Net
acquisitions
of assets by
transaction
taking place
during the
period
Net holding
gains
(Revaluation)
Transactions
Other
changes in
volume of
assets
Other economic flows
Flows
Stocks at
the end of
the period
(closing
balance)
What are financial accounts
The financial accounts - concise form - changes in assets and liabilities
Non-financial
Financial
corporations corporations
Assets
Net lending / net borrowing
83
Net acquisition of financial assets/liabilities
1. Monetary gold and SDRs
0
2. Currency and deposits
39
3. Debt securities
7
4. Loans
19
5. Equity and investment fund shares
10
6. Insurance, pension and standardized guarantee schemes 1
7. Financial derivatives and employee stock options
3
8. Other accounts receivable/payable
4
Liab. Assets
-56
139
0
0
6
21
83
0
3
26
General
Government
Liab. Assets
172
-1
173
-1
10
66
53
28
7
8
1
0
65
30
0
22
48
8
0
Households
Liab. Assets
-10
-103
93
0
-26
4
3
3
1
0
5
0
37
38
9
0
0
0
9
NPISHs
Liab. Assets
189
174
15
0
64
10
3
66
39
3
4
0
0
0
11
0
0
0
4
Total economy
Liab. Assets
2
-4
6
0
2
-1
0
0
0
0
1
0
0
0
6
0
0
0
0
Rest of the
World
Liab. Assets
436
10
426
-1
89
86
78
107
48
14
15
0
102
74
47
105
48
11
39
Total
Liab. Assets
Liab.
47
-10
57
483
0
483
1
11
9
4
12
0
0
10
0
-2
21
35
14
0
3
-14
0
100
95
82
119
48
14
25
0
100
95
82
119
48
14
25
The financial accounts - concise form - stocks in assets and liabilities
Non-financial
Financial
corporations corporations
Assets
Net financial worth
Total assets/liabilities
1. Monetary gold and SDRs
2. Currency and deposits
3. Debt securities
4. Loans
5. Equity and investment fund shares
6. Insurance, pension and guarantee schemes
7. Financial derivatives and employee stock options
8. Other accounts receivable/payable
Liab. Assets
Liab. Assets
6.113
-2.143
-7.274
8.256 11.184 18.458
0
577
273
2.316
2.217
20
0
711
0
0
1.415
3.838
2.189
0
0
814
16
1.474
3.499
4.454
1.521
2
0
217
General
Government
0
3.383
2.216
9.154
1.053
2.466
0
186
Households
NPISHs
Total economy
Liab. Assets
Rest of the
World
Liab. Assets
Total
Liab. Assets
Liab. Assets
1.269
-949
2.218
3.739
2.168
1.571
56
-49
-8.247
105 22.360 30.608 13.096
8.263
15
4.833 35.456 35.441
0
511
3
191
365
0
0
199
0
0
840
808
0
439
0
133
0
601
86
0
135
2.883
0
34
0
0
0
1.530
0
0
0
41
0
35
5
0
12
0
0
4
0
0
0
100
0
0
0
5
0
16
0
978 4.361 4.361
848 5.318 5.318
1.819 17.248 17.248
1.148 4.390 4.390
0 2.905 2.905
0
0
0
41 1.219 1.219
16
0
0
3.198 3.383 1.163
3.866 4.470 1.451
6.962 15.429 10.287
4.250 3.242
140
2.905 2.905
0
0
0
0
1.164 1.179
55
Liab. Assets
Liab.
The financial accounts - full detail - changes in assets and liabilities
What are financial accounts
Non-financial
corporations
Assets
Net lending / net borrowing
Net acquisition of financial assets/liabilities
1. Monetary gold and SDRs
Monetary gold
SDRs
2. Currency and deposits
Currency
Transferable deposits
Interbank positions
Other transferable deposits
Other deposits
3. Debt securities
Short-term
Long-term
4. Loans
Short-term
Long-term
5. Equity and investment fund shares
Equity
Listed shares
Unlisted shares
Other equity
Investment fund shares/units
Money market fund shares/units
Non MMF investment fund shares/units
6. Insurance, pension and standardized guarantee schemes
Non-life insurance technical reserves
Life insurance and annuity entitlements
Pension entitlements
Claim of pension fund on pension managers
Entitlements to non-pension benefits
Provisions for calls under standardized guarantees
7. Financial derivatives and employee stock options
Financial derivatives
Options
Forwards
Employee stock options
8. Other accounts receivable/payable
Trade credits and advances
Other account receivable/payable
Financial
corporations
Liab. Assets
83
-56
139
0
0
0
39
5
30
0
30
4
7
10
-3
19
14
5
10
10
5
3
2
0
0
0
1
1
0
0
0
0
0
3
3
1
2
0
4
3
1
General
Government
Liab. Assets
172
-1
173
0
-1
0
0
0
0
0
0
0
0
0
6
2
4
21
4
17
83
83
77
3
3
0
0
0
0
0
0
0
0
0
0
3
2
2
0
1
26
6
20
-1
10
15
-5
-5
0
0
66
13
53
53
4
49
28
25
23
1
1
3
2
1
7
2
0
0
3
0
2
8
8
3
5
0
1
0
1
Households
Liab. Assets
-10
-103
93
0
0
0
0
0
65
0
26
-5
31
39
30
18
12
0
0
0
22
11
7
4
0
11
5
6
48
7
22
11
3
2
3
8
7
2
5
1
0
0
0
0
-26
2
-27
0
-27
-1
4
1
3
3
1
2
3
3
1
1
1
0
0
0
1
0
0
0
0
0
1
0
0
0
0
0
5
1
4
NPISHs
Liab. Assets
189
174
15
0
0
0
0
0
37
35
2
0
2
0
38
4
34
9
3
6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
9
6
3
0
64
10
27
0
27
27
10
3
7
3
3
0
66
53
48
2
3
13
5
8
39
4
22
11
0
2
0
3
1
1
0
2
4
3
1
Total economy
Liab. Assets
2
-4
6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
11
2
9
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4
4
0
0
2
1
1
0
1
0
-1
0
-1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
1
Rest of the
World
Liab. Assets
436
10
426
0
-1
0
0
0
0
0
0
0
0
0
0
0
0
6
2
4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-1
89
33
26
-5
31
30
86
27
59
78
22
56
107
91
77
7
7
16
7
9
48
7
22
11
3
2
3
14
12
5
7
2
15
7
8
Total
Liab. Assets
Liab.
47
-10
57
483
0
483
0
1
0
0
0
0
0
0
0
0
0
102
35
28
-5
33
39
74
24
50
47
11
36
105
94
84
7
3
11
5
6
48
7
22
11
3
2
3
11
9
4
5
2
39
16
23
1
11
3
2
0
2
6
9
2
7
4
3
1
12
12
10
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
10
8
2
0
-2
1
0
0
0
-3
21
5
16
35
14
21
14
9
3
2
4
5
2
3
0
0
0
0
0
0
0
3
3
1
2
0
-14
-1
-13
0
100
36
28
-5
33
36
95
29
66
82
25
57
119
103
87
9
7
16
7
9
48
7
22
11
3
2
3
14
12
5
7
2
25
15
10
0
100
36
28
-5
33
36
95
29
66
82
25
57
119
103
87
9
7
16
7
9
48
7
22
11
3
2
3
14
12
5
7
2
25
15
10
Format for detailed flow of funds table or stocks of financial assets analysed by debtor and creditor
Financial assets/liabilities
Monetary gold and SDRs
Monetary gold
SDRs
Currency and deposits
Currency
Local currency
Residents
Non-residents
Foreign currency
Transferable deposits
Interbank positions
Other transferable deposits
Local currency
Residents
Non-residents
Foreign currency
Residents
Non-residents
Other deposits
Local currency
Residents
Non-residents
Foreign currency
Residents
Non-residents
Debt securities
Short-term
(Sectors)
Long-term
(Sectors)
Loans
Short-term
(Sectors)
Long-term
(Sectors)
S ectors and subsectors
Debtors/creditors
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Equity and investment fund shares
Equity
Listed shares
Resident enterprises
Non-residents enterprises
Unlisted shares
Resident enterprises
Non-residents enterprises
Other equity
Resident enterprises
Non-residents enterprises
Investment fund shares/units
Money market fund shares/units
Resident enterprises
Non-residents enterprises
Other investment fund shares/units
Resident enterprises
Non-residents enterprises
Insurance, pension and standardized guarantee schemes
Non-life insurance technical reserves
Life insurance and annuity entitlements
Pension entitlements
Claims of pension funds on pension managers
Entitlements on non-pension benefits
Provisions for calls under standardized guarantees
Financial derivatives and employee stock options
Financial derivatives
Options
Forwards
Employee stock options
Other accounts receivable/payable
Trade credits and advances
(Sectors)
Other accounts receivable/payable
(Sectors)
S ectors and subsectors
Debtors/creditors
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
The Development of Financial Accounts in Iceland,
collaboration & publishing
» The development started in 2010 with an agreement between the Statistics
Iceland and the Central Bank of Iceland
» The CB collects data for the financial sector and the rest of the world (IIP)
» Statistic Iceland collects and processes data for other sectors and finalizes the
compilation and balancing of the accounts
» To start with the ESA 1995 (European System of Accounts, 1995) was used
» Statistic Iceland got 3 years IPA grant (though 2013-2015) from the EU
(IPA=Instrument of multi-beneficiary Pre-Accession Assistance) to introduce
ESA 2010
» Currently, only stock data are published for the whole economy and its sectors
» Stock and flow data will be published later this year according to ESA 2010
The Development of Financial Accounts in Iceland,
methodology
» The financial accounts are classified by the sectors/subsectors on the financial
markets and by the nature of financial instruments (liquidity and legal
characteristics)
»
»
»
»
»
»
»
»
AF.1
AF.2
AF.3
AF.4
AF.5
AF.6
AF.7
AF.8
Monetary Gold & Special Drawing Rights
Currency and deposits
Securities other than Shares
Loans
Shares and other Equity
Insurance technical reserves
Financial derivatives
Other accounts receivable/payable
» The Icelandic economy is divided into five main sectors and eight subsectors
and the rest of the world is also added, so they are fourteen in total.
The Institutional Sectors in Iceland
The compilation and reconciliation of financial accounts
» Whom-to-whom basis
- debtor and creditor sectors / two sides involvement
- show detailed asset and liability positions of both sectors at end of the period
- comparing the available data with the counterpart data
- considerable difference can exist /same financial instrument
- definitions, timing and valuation methods
» The main matrix depicts two sources of data were available
- source data
- counterpart data
» Establish a hierarchy/ranking order of sources
» Select a “final” amount of each instrument, for the combination of
debtor/creditor sectors
» Sometime needs to make a judgment based on: (1) data revalidation and crosschecks; (2) consultation with experts; and (3) published vs. unpublished data,
etc.
Primary data sources
»
»
»
Financial balance sheets
Aggregated tax return statements
A need to ranking data sources
Rank
Sectors and subsectors
Data source
1.
2.
General government and its subsectors
The Central Bank of Iceland
3.
4.
Rest of the world
Financial corporations and the following
subsectors:
-Monetary Financial Institutions
-Other financial intermediaries
-Insurance corporations and Pension funds
Financial institutions in winding-up
proceedings or of creditors negotiations
Annual Government Accounts
Balance sheets
International Investment Position
calculated by the Central Bank of
Iceland, IIP
Balance sheets
5.
6.
7.
Non-financial corporations
Households & Non-profit institutions serving
households (NPISHs)
Balance sheets
Balance sheets from Tax
Authorities
Annual tax returns from Tax
Authorities
Simplified matrix
Asset sectors
Instrument F.2
Sector A
Liability sectors
Sector A
S
X
C
Y
F
Final data sector
S
X
C
Y
F
F
.
.
.
Sector N
S: source data
C: counterpart data
F: final data
Usually Y≠X
….
Sector N
Challenges
» Different valuations
- ESA recommends market value
- Some methods to approach or estimate the market value
-
Pricelist/price-register of comparable instruments
Various calculation methods used to approach the market value
» Calculation of quoted and unquoted shares problematic in the absence
of robust stock market
» Data on loans and securities needs to be disaggregated
» Work initiated on reducing data discrepancies between IIP and financial
sector
» Need to strengthen data collection of NPISHs
- To be disaggregated from the household sector in 2015
Valuation of financial instruments
The valuation of financial instruments can vary greatly due to their nature:
»
»
»
»
»
Gold reserves (F.11) is determined by the gold market
SDR´s (F.12) valued in ISK króna at daily rate published by the IMF
Currency and deposits (F.2) valued at nominal prices
Securities (F.3) are valued at market prices
Loans (F.4) are usually valued at nominal prices, the market prices of loans can
fluctuate according to their nature and lifetime
» Valuation of shares and equities (F.5) or the net worth is difficult in Iceland: (1)
the stock market or (2) the difference between assets and liabilities.
» Insurance technical reserves (F.6) valued on marked prices
» Other accounts receivable/payable (F.8) are usually recorded at nominal value
depending on their nature
First issue problems in Iceland
Some problems appeared related to data compilation and the methodology
that needed be solved:
» Shortage of financial data on special purpose entities and holding companies
» Some financial data only available as aggregated data, e.g. securities and
sometimes securities and loans not separated
» Very difficult to draw right picture of the Icelandic economy during the period
2007-2009 due to data problems following the economic crisis (and due to fall
of the ISK króna and frequent exchange fluctuations – foreign assets)
» Inconsistency between source data from foreign entities (S.2) and financial
corporations (S.12) – each case scrutinized
» Discrepancy in National Tax Authority’s source data and depository banks
regarding loans to HHs and NFCs during 2008-2009 due to different valuations
» Discrepancy in data sources of FCs in winding-up process and the bankrupt
entities
» Attempts have been made to harmonize as much as possible the financial data
collected by Statistics Iceland and the Central Bank
Financial accounts for one year – stock figures
Year 2012
In billion ISK
Net financial worth
Total assets/liabilities
MG and SDRs
Currency and deposits
Securities and loans
Shares and equity
Insurance technical reserves
Other accounts payable
Year 2012
Percent of GDP
Net financial worth
Total assets/liabilities
MG and SDRs
Currency and deposits
Securities and loans
Shares and equity
Insurance technical reserves
Other accounts payable
Nonfinancial
corporations
Financial
corporations
Assets Liabilities Assets
-2.142,8
6.112,9
8.255,7 11.184,0
0,0
0,0
15,5
576,8
0,0 1.473,6
2.589,3
5.252,4 7.953,7
2.216,6
2.189,0 1.521,4
19,6
0,0
2,4
710,6
814,2
217,4
Nonfinancial
corporations
Liab.
-7.273,7
18.457,7
0,0
3.382,8
11.370,0
1.052,7
2.466,2
185,9
Financial
corporations
Assets Liabilities Assets
-120,8
344,6
465,4
630,4
0,0
0,0
0,9
32,5
0,0
83,1
146,0
296,1
448,3
124,9
123,4
85,8
1,1
0,0
0,1
40,1
45,9
12,3
Liab.
-410,0
1.040,5
0,0
190,7
640,9
59,3
139,0
10,5
General
government
Assets
1.269,3
0,0
511,3
194,1
365,4
0,0
198,5
Liab.
-949,1
2.218,3
0,0
0,0
1.647,2
0,0
438,6
132,6
General
government
Assets
71,5
0,0
28,8
10,9
20,6
0,0
11,2
Liab.
-53,5
125,0
0,0
0,0
92,9
0,0
24,7
7,5
Households
and NPIS H
Assets
3.794,3
0,0
635,8
90,8
147,0
2.882,7
38,0
213,9
0,0
35,8
5,1
8,3
162,5
2,1
Rest of the world
Liab.
Assets
Liab.
Assets
2.118,4
-8.247,2
1.676,0 22.360,5 30.607,7 13.095,7
0,0
15,5
0,0
0,0
0,0 3.197,4 3.382,8 1.163,1
1.629,9 10.827,9 19.899,5 11.738,1
0,0 4.250,5 3.241,7
139,7
0,0 2.904,8 2.904,8
0,0
46,1 1.164,5 1.178,8
54,9
Households
and NPIS H
Assets
Domestic sectors
Liab.
119,4
94,5
0,0
0,0
91,9
0,0
0,0
2,6
Liab.
Assets
Liab.
8.262,7
15,5
4.833,0 35.456,2 35.440,7
0,0
15,5
0,0
977,7 4.360,5 4.360,5
2.666,5 22.565,9 22.565,9
1.148,4 4.390,1 4.390,1
0,0 2.904,8 2.904,8
40,5 1.219,3 1.219,3
Domestic sectors
Rest of the world
Assets
Assets
1.260,5
0,9
180,2
610,4
239,6
163,7
65,6
Liab.
-464,9
1.725,3
0,0
190,7
1.121,7
182,7
163,7
66,5
738,2
0,0
65,6
661,7
7,9
0,0
3,1
Total economy
Liab.
465,8
272,4
0,0
55,1
150,3
64,7
0,0
2,3
Total economy
Assets
1.998,7
0,9
245,8
1.272,0
247,5
163,7
68,7
• The following figures show some of the latest result and give an idea of
what is produced in Iceland.
Liab.
0,9
1.997,8
0,0
245,8
1.272,0
247,5
163,7
68,7
Billion
ISK
Figure 1. Financial assets of households and NPISHs
% of GDP
4,000
300
3,500
260
3,000
220
2,500
180
2,000
140
1,500
100
1,000
60
500
20
0
-20
2003
2004
Currency and deposits
2005
2006
Insurance technical reserves
Billion
ISK
2007
2008
2009
Securities other than shares and loans
Other accounts payable
2010
2011
Shares and equity
1,600
160
1,400
140
1,200
120
1,000
100
800
80
600
60
400
40
200
20
0
0
Financial Liabilities (left axis)
2006
2007
2008
It was 185% of GDP in the beginning of the
period and its highest proportion was 229% of
GDP in 2007, but fell to 197% in 2008 following
the crisis.
•
Pension claims are the largest FA. They were
163% of GDP in 2012 compared with 125% of
GDP in 2003. It reached 151% of GDP in 2006,
but fell to 131 in 2008.
•
The currency and deposits were 36% of GDP in
2012, but its peak was 51% in end of 2008.
•
In end of 2007, the shares and equities were 30%
of GDP but fell to 8.6% in 2008 following the
crisis. In end of 2012, it was 8.3% of GDP.
•
The financial liabilities of HHs and NPISHs were
95% of GDP in end of 2012 and had been close to
that in the beginning of the period. Its peak was in
2007 reached the level of 115% of GDP.
•
The liabilities are mostly in form of loans.
•
The net financial assets position was 119% of
GDP in end of 2012 and has not been higher. In
2007, it reached of 114% but fell to 100% in
2008. In the beginning of the period it was 92%.
% of GDP
180
2005
•
2012
1,800
2004
In 2012, the total financial assets (FA) of the HHs
and NPISH was 3,8 billion ISK or 214 of GDP.
Financial Assets (right axis)
Figure 2. Financial liabilities of households and NPISHs
2003
•
2009
Financial liabilities (right axis)
2010
2011
2012
Financial net worth (right axis)
Billion
ISK
Figure 3. Financial assets of nonfinancial corporations
% of GDP
11,000
825
10,000
750
9,000
675
8,000
600
7,000
525
6,000
450
5,000
375
4,000
300
3,000
225
2,000
150
1,000
75
0
•
The financial assets position of NFCs was 345%
of GDP in end of 2012. It reached is peak in 2007
when it was 729% of GDP. In the beginning of
the period it was 206% of GDP.
•
Through the period the shares and equity was the
biggest asset part. It when up to 446% of GDP in
2007 but fell drastically in 2008 to 203% of GDP
and was 125% in end of 2012.
•
The other part of interest here is the development
of the asset position in securities and loans, which
is now the biggest financial assets of the NFCs or
146% of GDP.
•
The net financial worth of the NFCs reached its
lowest point in 2007 when it was negative by
242% of GDP. In the beginning of the period it
was 133% of GDP and in end of 2012 it was
121% of GDP.
•
Securities and loans is the biggest liabilities part
and it reached the highest ratio in 2008 when it
was 466% of GDP. It was 296% in end of 2012
and 172% in the beginning of the period.
•
It is also interesting to see the development of the
liabilities in shares and equities which accounted
for 416% of GDP in 2007 and fell to 196% of
GDP in 2008. It was 123% of GDP in end of
2012.
0
2003
2004
2005
Currency and deposits
Other accounts payable
2006
2007
2008
2009
Securities other than shares and loans
Financial Assets (right axis)
2010
2011
Shares and equity
Figure 4. Financial liabilities of nonfinancial corporations
Billion ISK
2012
% of GDP
16,000
0
14,000
-50
12,000
-100
10,000
-150
8,000
-200
6,000
-250
4,000
-300
2,000
-350
0
-400
2003
2004
Securities and loans
2005
2006
Shares and equity
2007
2008
2009
Other accounts payable
2010
2011
2012
Financial net worth (right axis)
Billion
ISK
Figure 5. Total financial assets of financial corporations
% of GDP
16000
1,200
14000
1,050
12000
900
10000
750
8000
600
6000
450
4000
300
2000
150
0
•
As shown in this figure, the financial assets
position of FCs was 10 times the GDP in 2007
•
By excluding the FCs in the winding-up process,
the asset position went down to 553% of GDP in
2008. The financial assets of the FCs in the
winding-up process was 186% of GDP in 2008.
•
In end of 2007, the financial liability position was
close to 10 times the GDP, so the net financial
worth of FCs was positive of 10% of GDP.
•
Following the crisis, the liability position went up
to 1,295% of GDP in 2008, but has reach the level
of 1,040% of GDP in 2012.
•
Around 55% of the liability position is in
winding-up process.
•
The net financial worth was slightly positive up to
2007, but has changed drastically following the
crisis.
0
2003
2004
2005
2006
FCs under winding-up process
2007
2008
2009
2010
FCs excluding those in winding-up process
2011
Financial Assets (right axis)
Figure 6. Total financial liabilities of financial corporations
Billion ISK
2012
Billion ISK
24,000
2,000
21,000
500
18,000
-1,000
15,000
-2,500
12,000
-4,000
9,000
-5,500
6,000
-7,000
3,000
-8,500
0
-10,000
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
FCs under winding-up process (left axis)
FCs excluding those in winding-up process (left axis)
Financial net worth, total (right axis)
NFW excl. those in winding-up proceedings (right axis)
Billion
ISK
Figure 7. Financial assets of other depository corporations
12,000
10,000
•
The financial asset position of depository
corporations was 168% of GDP in 2012 and as
well in 2003, but had reached its peak in 2007
when it was 704% of GDP.
•
The great majority of the assets is loans.
•
The development of the liability position of DFCs
is similar to the their assets development.
•
In 2012, the total liabilities were 167% of GDP
compared with 174% in 2003. The highest ratio
was 706% of GDP in 2007.
•
The net financial worth of DFCs was negative by
19% of GDP in 2008.
•
From 2008 and onward, the largest liability part is
currency and deposits. But prior to that, it was
securities and loans.
•
Securities and loans were 405% of GDP in 2007,
but 39% in 2012.
8,000
6,000
4,000
2,000
0
2003
2004
2005
2006
Total financial assets
2007
2008
2009
2010
2011
Thereof securities and loans
2012
Figure 8. Financial liabilities of other depository corporations
Billion ISK
% of GDP
12,000
15
10,500
10
9,000
5
7,500
0
6,000
-5
4,500
-10
3,000
-15
1,500
-20
0
-25
2003
2004
Shares and equity
Other accounts payable
2005
2006
2007
2008
2009
Securities and loans
Financial net worth (right axis)
2010
2011
2012
Currency and deposits
Billion
ISK
Figure 9. Financial assets of insurance companies and pension funds
% of GDP
3,000
200
2,700
180
2,400
160
2,100
140
1,800
120
1,500
100
1,200
80
900
60
600
40
300
20
0
•
The financial asset position of IFCs 146% of GDP
in end of 2012 compared with 104% in the
beginning of the period.
•
It was 134% of GDP in 2007, but fell to 116% in
2008.
•
The largest part of the assets is securities, but in
2005-2007 the shares and equity was larger.
•
The net financial worth of general government
was negative by 54% of GDP in 2012 and had
been deteriorated since 2007 when it was positive
by 1% of GDP. In the beginning of the period it
had been negative by 30% of GDP.
•
The total liability position was 125% of GDP in
2012 compared with 71% in 2003. It was 52% in
2007 and jumped to 100% in 2008.
•
Most of the liabilities are with the central
government.
0
2003
2004
2005
Currency and deposits
Other accounts payable
Billion
ISK
2006
2007
2008
2009
Securities other than shares and loans
Financial Assets (right axis)
2010
2011
2012
Shares and equity
Figure 9. Financial liabilities of general government
% of GDP
2,400
20
2,100
0
1,800
-20
1,500
-40
1,200
-60
900
-80
600
-100
300
-120
0
-140
2003
2004
Local government
2005
2006
Social security funds
2007
2008
2009
Central government
2010
2011
2012
Financial net worth (right axis)
Billion
ISK
Figure 11. The financial assets of rest of the world
% of GDP
16,000
1,050
975
900
825
750
675
600
525
450
375
300
225
150
75
0
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2003
2004
2005
2006
Currency and deposits
Other accounts payable
2007
2008
2009
Securities other than shares and loans
Financial Assets (right axis)
2010
2011
6,000
600
5,000
500
4,000
400
3,000
300
2,000
200
1,000
100
0
0
Securities and loans
2005
2006
Shares and equity
2007
2008
2009
Other accounts payable
The bulk of the assets is in form of securities and
loans.
•
Currency and deposits increased drastically in
2007-2008 and has been considerable due to the
capital control.
% of GDP
700
2004
•
2012
7,000
2003
The financial assets of RoW went from 143% of
GDP in 2003 to 625% in 2007, then there was a
jump to 945% of GDP in 2008 due to the crisis. It
has since been reduced to 738% in 2012.
Shares and equity
Figure 12. Financial liabilities of rest of the world
Billion ISK
•
2010
2011
2012
Financial net worth (right axis)
•
The RoW liabilities increased rabidly through
2003-2007 or from 79% of GDP in 2003 to 508%
in 2007.
•
The due to the crisis the liabilities fell drastically
and was 272% of GDP in 2012.
•
The RoW's net financial worth increased slowly
from 2003 to 2007, but jumped from 118% of
GDP to 660% of GDP between 2007 and 2008
due to crisis and the exchange rate crash.
Format for detailed flow of funds table or stocks of financial assets analysed by debtor and creditor
Financial assets/liabilities
Monetary gold and SDRs
Monetary gold
SDRs
Currency and deposits
Currency
Local currency
Residents
Non-residents
Foreign currency
Transferable deposits
Interbank positions
Other transferable deposits
Local currency
Residents
Non-residents
Foreign currency
Residents
Non-residents
Other deposits
Local currency
Residents
Non-residents
Foreign currency
Residents
Non-residents
Debt securities
Short-term
(Sectors)
Long-term
(Sectors)
Loans
Short-term
(Sectors)
Long-term
(Sectors)
S ectors and subsectors
Debtors/creditors
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Equity and investment fund shares
Equity
Listed shares
Resident enterprises
Non-residents enterprises
Unlisted shares
Resident enterprises
Non-residents enterprises
Other equity
Resident enterprises
Non-residents enterprises
Investment fund shares/units
Money market fund shares/units
Resident enterprises
Non-residents enterprises
Other investment fund shares/units
Resident enterprises
Non-residents enterprises
Insurance, pension and standardized guarantee schemes
Non-life insurance technical reserves
Life insurance and annuity entitlements
Pension entitlements
Claims of pension funds on pension managers
Entitlements on non-pension benefits
Provisions for calls under standardized guarantees
Financial derivatives and employee stock options
Financial derivatives
Options
Forwards
Employee stock options
Other accounts receivable/payable
Trade credits and advances
(Sectors)
Other accounts receivable/payable
(Sectors)
S ectors and subsectors
Debtors/creditors
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Money flows between non-MFIs, MFIs and RoW
MFI credit to non-MFIs
Money holdings
Non-MFIs
Financial investments
other than money
MFIs
RoW credit
to non-MFIs
Net lending
of non-MFIs
Rest of the
world
Cash flows are received by the sector with a net lending position from sector with a net
borrowing position.
Analytical uses of financial accounts
• Flow of funds provide comprehensive and consistent set of macro-finance information
on all sectors of the economy. Integrated with the non-financial accounts, they provide
unique overview for analysis of interactions between the real and financial sides of the
economy and the assessment of major risks of financial imbalances
• A detailed flow of funds table can be used in many important areas related to economic
policy:
»
»
Analyzing and descripting activities and trends in current periods.
In projections of production and assessment of economic policies
- How will the central government’s deficit be financed?
- How will the major public nonfinancial corporations be financed and by whom?
»
»
»
»
In modelling of the economy to study economic behavior.
To help to analyse the interrelation between real investment, financial investment and
saving.
To assess financial stability
After the crisis the analysts have focused on: financial imbalances, evolution of the balance
sheets of financial intermediaries, development in BSs of HHs and NFCs as financial
indicators like debt ratios, financial wealth (wealth effects), growth of public debt, etc.
Analytical uses of financial accounts
» Portfolio shifts between money and other financial assets.
» Two main sources of changes in the money holdings of non-MFIs
- A “credit effect” with the rise in total FAs of non-MFIs due to MFI credit
- A “portfolio shift effect” a shift between money and non-monetary FAs in
in the total financial assets held by non-MFIs
Contributions of credit effect and the portfolio shift effect to money growth
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
1997
1998
1999
2000
2001
2002
Credit effect % of GDP
2003
2004
2005
Protfolio shift effect % GDP
2006
2007
2008
Analytical uses of financial accounts
» Banking intermediation
- Comparing MFI credit to non-MFIs with total credit to non-MFIs
- 2007: MFI’s credit 39% of total financing, loans 73% of total and debt securities 20%
Share of total credit granted by MFIs in the total financing of non-MFIs
100
50
80
40
60
30
40
20
20
10
0
0
1999
2000
Loans (left axis)
2001
2002
Debt securities (right-axis)
2003
2004
Shares (right axis)
2005
2006
Total financing (right axis)
2007
Conclusion
» FoF is a key framework for the analysis of monetary, financial and economic
developments and the interrelations between them.
» FoFs allow financial intermediation process to be tracted
» In modelling of the economy to study economic behavior.
» To help to analyse the interrelation between real investment, financial
investment and saving.
» To assess financial stability
» After the crisis the analysts have focused on: financial imbalances, evolution of
the balance sheets of financial intermediaries, development in BSs of HHs and
NFCs as financial indicators like debt ratios, financial wealth (wealth effects),
growth of public debt, etc.
Economic theory – an example
»
qi = fi[Rei - Cei, Moi; qij]
Sum q1 = sum fi [Rei-Cei, Moi; qij] i=1,.......,n
j = 1,.......,m
C
Skammtíma
tekju- og
kostnaðarvæntingar
e
e
Ci
R
e
(R ,C )
Mynd 11.1
e
i
(1) q = f[Re-Ce,Mo,qj]
e
i
q3 q1 q4 q 2
Framleiðslumagn (Q)
The entrepreneurs‘ expectations of aggregate demand can be broken down to expectations of
consumption Cpe, public expenditure Ge, investment Ie, speculation on goods Sge, and export
Exe; where p (price structure) is implicit in the expectations. This can formulated in following
equation:
(2) Re = g[Cpe,Ge,Ie,Sge,Exe]
The entrepreneurs’ consumption expectations depend on factors like current consumption [Cp],
the consumers taste [SM], the current and expected price structure [p, pe], and the expectations
of financing consumption, which depend on factors like current and expected disposable income
[Yd,Yde], the current expected interest rates [r,re], the current and expected consumers‘ wealth
[WI,WIe], and other factors Z like access to borrowing.
(3) Cpe = h[Cp,Sm,Yd,Yde,r,re,p,pe,WI,WIe,Z]
Economic theory – an example
The entrepreneurs expectations of government expenditures depend on factors like current
expenditure [G], the governments intensions and their expectations of financing the expenditure,
which depend on the current and expected tax revenues [T,Te], expected net supply of
government financial assets and liabilities [sFGe], and other factors [Z] like government
creditworthiness and borrowing accessability. This relation is shown in following equation.
(4) Ge = j[G,Sm,T,Te,sFGe,Z]
The investment demand [I], which can be divided into working capital demand [Iwk] and fixed
capital demand [Ifk], depends first and foremost of investors’ expectations of revenue and costs
and their motives; or in other words on their planned production q. Such expectations can be both
to short and long-term dependent of the nature of the planned investment. The demand for fixed
capital is usually determined by long-term expectations. Other important factors for investment
decisions are current and expected prices of working and capital goods [pwk,pwke,pfk,pfke], the
current and expected wage level [w,we], the current and expected "real-mark" value [rm,rme], and
other factors Z like and technology options, new technology, borrowing accessibility and other
operational premises. It is of course the entrepreneurs expectations of investors demand that matter
in this context. The relations can be shown by following equations, where q*l stands for the
planned long-term production.
Iwke = k[q*,pwk,pwke,w,we,r,re,Z]
Ifke = f[q*l,pfk,pfke,r,re,rm.rme,Z]
(5) Ie = Iwke + Ifke
.