MFS - Lesson 5 - 8 October 2022

Monetary
and Financial Statistics
LESSON #5
Monetary and Financial Statistics
Postgraduate Program in Statistical Systems 2022|2023
Lesson 5: 8 October 2022
Assets and liabilities of financial institutions
1. Definition of assets and liabilities
2. Instrument categories of assets and liabilities
3. Breakdowns of instrument categories
Postgraduate Program in Statistical Systems, 2022|2023 2
Definition of assets and liabilities
What is a balance sheet
 We have seen in previous lessons that the main source of data for
compiling MFS is the (statistical) balance sheet of the institutions
belonging to the financial sector
 A balance sheet is a statement, drawn up in respect of a particular point
in time, of the values of assets owned and of the liabilities owed by an
institutional unit or group of units (SNA 2008, paragraph 13.2)
 A balance sheet may also be drawn up for institutional sectors and the
total economy
Assets & liabilities
 Assets can be financial or non‐financial but liabilities are always financial

 There are no non‐financial liabilities, thus the term liability necessarily
refers to a liability that is financial in nature
 Financial assets are stores of value representing a benefit or series of
benefits accruing to an economic owner by holding or using the assets
over a period of time (ESA 2010, paragraph 5.04)
 Financial assets are a means of carrying forward values from one
accounting period to another. Benefits are settled through payments
 Each financial asset has a counterpart liability, with one exception (we will
talk about it on slide 11)
Assets & liabilities
 Excluded from the asset and liability boundary are:

 Human capital
 Natural assets that are not considered as economic assets (e.g. air,
river water)
 Contingent assets and liabilities, which are conditional upon the
occurrence of uncertain future events
 Financial guarantees or lines of credit are examples of contingent financial
instruments. They are registered in off‐balance accounts
Instrument categories of assets
and liabilities
Instrument categories of assets and liabilities
 Financial corporations can hold financial and non‐financial assets

 With regard to liabilities, we have already seen that there are only
financial liabilities
 MFS are mainly interested in the financial activity of financial
corporations, so their balance sheets present great detail in terms of the
categories of instruments that make up their financial assets and liabilities
 Over the next slides we will present these instrument categories
Instrument categories
Instrument categories of the balance sheet of financial corporations
Monetary gold Investment fund shares/units
Cash Insurance techical reserves
Currency in circulation Pension entitlements
Deposits Non‐financial assets
Loans Remaining assets
Debt securities Remaining liabilities
Equity Capital and reserves
Monetary gold
 Monetary gold is gold to which monetary authorities have title and which
is held as reserve assets
 Gold held by a central bank is normally classified as monetary gold and is
a financial asset, whereas gold held by anyone else (including other MFIs)
is treated statistically as a commodity, and thus as a non‐financial asset
 Monetary gold includes gold bullion, and unallocated gold accounts with
non‐residents that give title to claim the delivery of gold
 Gold bullion included in monetary gold is the only financial asset for
which there is no counterpart liability. It takes the form of coins, ingots,
or bars with a purity of at least 995 parts per 1000
Monetary gold
 Transactions in monetary gold consist predominantly of purchases and

sales of monetary gold among monetary authorities
 There cannot be any transactions in monetary gold involving institutional
units other than those
 If monetary authorities add non‐monetary gold to their holdings of
monetary gold (for example, by purchasing gold on the market), or release
monetary gold from their holdings for non‐monetary purposes (for
example, by selling it on the market), they are deemed to have monetised
or demonetised gold, respectively
Cash
 Cash comprises banknotes and coins held by an institution

 In the particular case of banks it is also known as vault cash and includes
the banknotes and coins which are held by banks in order to meet their
day‐to‐day business needs, for example in branches and ATMs
 Foreign currency is also included as well as commemorative coins
intended for circulation
Cash
 In the euro area countries may issue two commemorative €2 coins per
year to celebrate a subject of major national or European relevance.
 These coins are issued at face value and are meant to be used for making
payments. They are legal tender throughout the euro area and must be
accepted for payments like any other euro coin
 Gold coins (except the ones held by central banks) and coins not
intended for circulation should not be treated as cash but as a
commodity and should be recorded under the instrument category “non‐
financial assets”
Currency in circulation
 Currency in circulation represents the euro banknotes which can be issued

only by the Eurosystem (in some countries outside the euro area commercial banks may issue banknotes)
 Currency in circulation is recorded as a liability of the Eurosystem only
 Euro coins are, by convention, always treated also as a monetary liability of
central banks for statistical purposes, even though it is typically
governments that are the legal issuers. They are part of the monetary
aggregates and always included under the liability category “currency in
circulation” on the central bank balance sheet
 In lesson #8 we will explain the allocation method of the issuance of euro
banknotes to the ECB and the euro area NCBs
Deposits
 Deposits are standardised, non‐negotiable contracts with the public at

large, offered by deposit‐taking corporations and allowing the placement
and the later withdrawal of the principal amount by the creditor
 Deposits have 3 main important characteristics:
 Transferability – possibility of mobilizing funds by using payment facilities
 Convertibility – possibility and the cost of converting funds into currency or
transferable deposits
 Certainty – means knowing precisely in advance the capital value of funds in terms
of national currency
Deposits
 Within the MFS framework we distinguish 4 categories of deposits:

 Overnight deposits – convertible into currency and/or transferable on
demand by cheque, banker’s order, debit entry or similar means, without
significant delay, restriction or penalty. They are divided in 2 sub‐
categories:
 Transferable deposits – directly transferable on demand to make payments to
other economic agents by commonly used means of payment, such as credit
transfer, direct debit, credit or debit card, e‐money transactions, cheques, or
similar means, without significant delay, restriction or penalty
 Non‐transferable deposits – can only be used for cash withdrawal or funds can be
withdrawn or transferred only through another account of the same owner
Deposits
 Deposits with agreed maturity – non‐transferable deposits which cannot

be withdrawn before an agreed fixed term, or that can be withdrawn only
subject to a penalty
 Deposits redeemable at notice – non‐transferable deposits, usually with
no agreed maturity, but which may be withdrawn without penalty only
after a period of notice
 Repurchase agreements, or repos for short, are the counterpart of cash
received in exchange for a sale of a security with a commitment to buy it
back (at a fixed price) usually within a few days
Deposits
 For the purposes of MFI balance sheet statistics, the category “deposits”
appears by convention on the liabilities side of the MFI balance sheet
only
 All sectors other than deposit‐taking corporations may hold deposits as
assets
 Interbank placements will be recorded as a deposit by the debtor MFI
and as a loan by the creditor MFI
Loans
 Loans are created when creditors lend funds to debtors, which are not
evidenced by documents or are evidenced by non‐negotiable documents
 A loan is an unconditional debt to the creditor which has to be repaid at
maturity and which is interest‐bearing
 Besides traditional loans, also credit card debt, overdrafts and financial
leases are included in this instrument category
 For households, a useful sub‐categorization is (a) loans for consumption;
(b) loans for house purchases; and (c) other loans
 In lesson #9 we will talk in greater detail about loans
Debt securities
 Debt securities are negotiable financial instruments serving as evidence

of a debt
 They can be traded on secondary markets, or can be sold on the market
 They do not grant the holder any ownership rights over the issuer
 They give the holder the unconditional right to a fixed or contractually
determined income in the form of coupon payments and/or a stated fixed
sum on a specific date or dates
 Examples: Treasury bills; commercial paper; bonds
Debt securities
 Almost all financial institutions can hold and issue debt securities
 This means that this instrument category may be present either on the
asset side (for the holdings) of the balance sheet or on the liabilities side
(for the issues)
 Thus, the expression “debt securities held" is used to represent this
instrument in the asset side and “debt securities issued” in the liabilities
side
 In lesson #14 we will see in detail the full set of characteristics of debt
securities
Equity
 Equity represents property rights on corporations. It also has the

following characteristics:
 Provides the holder with a claim on the residual value of a corporation,
after all other claims have been met
 There is no obligation to pay the holder a fixed or predetermined
income or dividend
 There is not usually a stated maturity date, but there is a specific issue
date with a stated issue price
Equity
 Ownership of equity in legal entities is usually evidenced by shares or

other types of participations
 Equity is subcategorised into the following: (a) listed shares (equity
securities listed on an exchange); (b) unlisted shares; and (c) other equity
 Both listed shares and unlisted shares are negotiable
 Holdings of equity appear in the asset side of the balance sheet of MFIs
 Issues of equity are included in the instrument category “Capital and
reserves”
Investment funds shares/units
 Investment funds are collective investment undertakings through which

investors pool funds for investment in financial and/or non‐financial assets
 Investment fund shares/units represent a claim on a portion of the value
of an investment fund. When you buy shares or units of an investment
fund you become a part owner of the fund, which gives you the right to a
share of what the fund collects in interest or realizes in capital gains
 MMF shares/units are issued by Money Market Funds
 Non‐MMF shares/units are issued by all investment funds except MMFs
 In lesson #12 we will talk extensively about investment funds
Insurance technical reserves
 Insurers collect premiums and pays claims or benefits on the occurrence

of an insured event. The claims or benefits compensate the beneficiary
for the financial consequences of the insured event
 Insurance technical reserves, resulting from collecting premiums, are
funds that insurers use to invest and to earn income
 The reserves are assets to the policyholders and liabilities to the insurers
 The technical reserves can be distinguished between non‐life and life
insurance and annuities
 In lesson #13 we will address this category of instrument in more depth
when we talk about insurance corporations statistics
Pension entitlements
 Pension entitlements represent the financial claims that both existing and
future pensioners hold against either their employer or a fund designated
by the employer to pay pensions earned as part of a compensation
agreement between the employer and employee
 In lesson #13 we will address this category of instrument in more depth
when we talk about pension funds statistics
Non‐financial assets
 Non‐financial assets consist of tangible or intangible assets other than

financial assets
 It includes dwellings, other buildings and structures, machinery and
equipment, valuables (e.g. works of art, antiques, jewellery, precious
stones or metals), and intellectual property products such as computer
software and databases
 It also includes virtual currencies which are not financial assets and coins
that are not intended for circulation (such as collector coins) and gold
coins held by institutions (other than central banks)
 Non‐financial assets are divided into produced non‐financial assets and

non‐produced non‐financial assets
Fixed assets (e.g. buildings, machinery, equipment)
Produced assets Inventories
Valuables (e.g. works of art, antiques, jewellery, precious stones or metals)
Natural resources (e.g. land, mineral and energy reserves, water resources)
Non‐produced assets Contracts, leases and licences
Goodwill and marketing assets (intangible assets, e.g. brand name, business reputation)
Remaining assets
 Remaining assets is a residual item on the asset side of the balance sheet,
defined as "assets not included elsewhere“
 Examples: other accounts receivable (e.g., accrued interest receivable on
loans, deposits or debt securities, or dividends to be received), positions
in financial derivatives and statistical discrepancies which may arise when
the statistical balance sheet is derived from the accounting balance sheet
Remaining liabilities
 Remaining liabilities is a residual item on the liability side of the balance

sheet, defined as "liabilities not included elsewhere"
 Examples: other accounts payable (e.g., accrued interest payable on loans,
deposits or debt securities, or dividends to be paid) and statistical
discrepancies (mentioned before)
Capital and reserves
 The instrument category Capital and reserves comprises amounts arising

from equity capital issued, representing for the holder property rights and
generally an entitlement to a share in its profits and in its residual value in
the event of liquidation
 Capital and reserves includes the following sub‐items:
 Equity capital raised
 Profit or loss accumulated in the accounting period
 Net revaluations of assets and liabilities
 Funds arising from income not distributed to shareholders
 Provisions
Breakdowns of instrument categories
 With the exception of insurance technical reserves and pension

entitlements, all the other instrument categories are present in the
balance sheet of MFIs
 The balance sheet of MFIs, as we will see later in the course, is the
essential piece for the calculation of monetary aggregates and for the
analysis of the evolution of credit to the economy
 Therefore, for reporting purposes, some of the instrument categories
need to be broken down by different criteria
 Criteria to break down the instrument categories of the BS of MFIs:

 R  Residency of the counterparty (domestic | euro area other than domestic |
rest of the world)
 S  Sector of the counterparty
 C  Currency (euro | foreign currencies)
 M  Maturity (original maturity of the instrument)
 PL  Purpose of the loan (only for loans to households)
 TD  Type of deposit (only for deposits)
 The table in the next slide presents the required breakdowns applicable
for each instrument category in the balance sheet of MFIs
Instrument category Broken down by
Cash C
Deposits R | S | C | M | TD
Loans R | S | C | M | PL
Debt securities HELD R | S | C | M
Debt securities ISSUED C | M
Equity R | S
Investment fund shares/units R | S
Remaining assets
Remaining liabilities
Capital and reserves
Preparing for understanding the BS of financial institutions
 This overview of the various instrument categories included in the

balance sheet of the different types of financial institutions was
important for a better understanding of those balance sheets, which will
be done in the following lessons:
 Lesson #7: analysis of the balance sheet of MFIs
 Lesson #12: analysis of the balance sheet of investment funds
 Lesson #13: analysis of the balance sheet of the remaining types of
financial institutions
Questions?
Luís Teles Dias
ldias@novaims.unl.pt

MFS - Lesson 5 - 8 October 2022

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Monetary

 Assets can be financial or non‐financial but liabilities are always financial

 Excluded from the asset and liability boundary are:

 Financial corporations can hold financial and non‐financial assets

 Transactions in monetary gold consist predominantly of purchases and

 Cash comprises banknotes and coins held by an institution

 Currency in circulation represents the euro banknotes which can be issued

 Deposits are standardised, non‐negotiable contracts with the public at

 Within the MFS framework we distinguish 4 categories of deposits:

 Deposits with agreed maturity – non‐transferable deposits which cannot

 Debt securities are negotiable financial instruments serving as evidence

 Equity represents property rights on corporations. It also has the

 Ownership of equity in legal entities is usually evidenced by shares or

 Investment funds are collective investment undertakings through which

 Insurers collect premiums and pays claims or benefits on the occurrence

 Non‐financial assets consist of tangible or intangible assets other than

 Non‐financial assets are divided into produced non‐financial assets and

 Remaining liabilities is a residual item on the liability side of the balance

 The instrument category Capital and reserves comprises amounts arising

 With the exception of insurance technical reserves and pension

 Criteria to break down the instrument categories of the BS of MFIs:

 M  Maturity (original maturity of the instrument)

 PL  Purpose of the loan (only for loans to households)

 TD  Type of deposit (only for deposits)

 This overview of the various instrument categories included in the

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