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We have been provided with 3 excellent papers which survey technical treatments of loans, their valuation and issues surrounding non-performance thereof. However, I think that insufficient case has been made for changes to SNA particularly. Convergence of standards, whilst highly desirable, is only a secondary consideration to statistics which are "fit for purpose".
In my view, SNA does users of national accounting statistics a disservice just when clarity is needed most, i.e. when economies and particularly financial systems are under stress. My views have been formed from direct experience of wrestling with financial account compilation in Australia during a boom and bust cycle of the late 1980s and early 1990s. Unhappily, I revisited the lessons of that episode when consulting on the Thai financial accounts for 1997! I understand from discussions with other financial account compilers that similar lessons have also been experienced. I can recall a 1999 paper presented by Japan to the OECD Working Group on Financial Statistics which addressed, inter alia, issues related to valuation of bank loan assets.
These experiences have convinced me that SNA needs to take on board fair value concepts for financial assets other than securities. Recording loans and deposits at nominal values in a situation where collateral is rapidly deflating and institutions are becoming insolvent sends no formal signal of difficulties. Statistics compiled according to the SNA-related statistical manuals (BPM5, GFS, MMFS) likewise provide no formal signal, and need revision. The implications of fair value accounting for balance sheet items on income measurement needs revision.
While poor information about a rapid slide into financial crisis is reason enough to look at the problem, the recovery phase is sometimes difficult to discern under SNA accounting rules, and we run the risk of inappropriate policy responses based on poor information. In this context I hope there is some discussion about "re-recognition" of assets held as collateral after the collapse of borrowing entities and statistical treatments of assets corralled in so-called asset management companies. I have visions of "whole streets of buildings" in Sydney, Melbourne and Bangkok central business districts forming inventories to be sold to recover previously written down debt when property prices turn.
So while there is a range of interesting technical issues in front of us, I hope that the EDG can also provide a solid user-oriented justification for the chosen direction.
Derick Cullen
Financial Accounts Section
Australian Bureau of Statistics |
