Contrast the modern construct for FISIM with a measure that sub- tracts deposits

Question

Contrast the modern construct for FISIM with a measure that sub- tracts deposits from the financial sector’s lending to measure value added in the sector. How will these two measures differ in terms of size and sensitivity to risk? Can you give a view of the world for each to be the proper measure of value added? Contrast the modern construct for FISIM with a measure that sub- tracts deposits from the financial sector’s lending to measure value added in the sector. How will these two measures differ in terms of size and sensitivity to risk? Can you give a view of the world for each to be the proper measure of value added? Contrast the modern construct for FISIM with a measure that sub- tracts deposits from the financial sector’s lending to measure value added in the sector. How will these two measures differ in terms of size and sensitivity to risk? Can you give a view of the world for each to be the proper measure of value added?

Explanation / Answer

FISIM stands for Financial Intermediation Services Indirectly Measured. It is an estimate of the value of the services provided by financial intermediaries, such as banks for which no explicit charges are made; instead these services are paid for as margin between the rates applied to savers and borrowers. The supposition is that savers would receive a lower interest rate and borrowers pay a higher interest rate if all financial services are explicitely paid.

One method of calculating it is as the total property income as the total property income receivable by financial intermediaries minus their total interest payable, excluding the value of any proprty income receivable from the investment of their own funds, as such income does not arise from financial intermediation.

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