4. Classification of Financial Assets and Liabilities (2024)

Monetary gold [F11]

4.16 Monetary gold is gold to which the monetary authorities (or others who are subject to the effective control of the monetary authorities) have title and is held as a reserve asset.4 It comprises gold bullion (including gold held in allocated gold accounts) and unallocated gold accounts with nonresidents that give title to claim the delivery of gold. All monetary gold is included in reserve assets or is held by international financial institutions.

4.17 For gold bullion, there is no corresponding liability. Except in limited institutional circ*mstances when reserve assets may be held by other institutions, gold bullion can be a financial asset only for the central bank or central government. Gold bullion takes the form of coins, ingots, or bars with a purity of at least 995 parts per thousand. Gold bullion holdings that are not part of reserve assets are classified as nonfinancial assets.

4.18 An allocated gold account provides ownership of a specific piece of gold, whereas an unallocated gold account does not give the holder the title to physical gold but provides a claim against the account operator to deliver gold (see also paragraph 4.44). Both allocated and unallocated gold accounts can be opened by any sector or subsector with a financial corporation (FC) that offers such services.

4.19 Allocated gold accounts are classified as monetary gold when held by monetary authorities (or other units authorized by them) as reserve assets, or as a nonfinancial asset when not held as reserve assets. Unallocated gold accounts that give title to claim the delivery of gold are classified as monetary gold when held by monetary authorities (or other units authorized by them) as reserve assets. Unallocated gold account assets not held as reserve assets, and all unallocated gold account liabilities, are classified as deposits in foreign currency. The same principle applies to unallocated accounts for other precious metals.

4.20 Nonmonetary gold, which can be in the form of bullion, gold powder, and gold in other unwrought or semi-manufactured forms, or gold coins, may be held as either a store of value or for industrial purposes. In some cases, a central bank may own gold bullion that is not held as a reserve asset and thus should be classified as nonmonetary gold.

Special Drawing Rights [F12]

4.21 SDRs are international reserve assets created by the IMF and allocated to its members that are SDR Department5 participants (currently all IMF member countries) to supplement existing official reserves. SDRs are held by member countries (central banks or central governments) that participate in the SDR Department. Other holders of SDRs include the IMF, through the General Resources Account (GRA) within the General Department, and international organizations and monetary institutions prescribed by the IMF.6 SDRs are transferable among SDR Department participants, prescribed holders, and the IMF GRA.7 SDR holdings represent assured and unconditional rights to obtain freely usable currency.

4.22 SDRs are assets representing claims on the SDR Department participants collectively and not on the IMF. A holder of SDRs may sell some or all of its SDR holdings to another participant or holder and receive in return a freely usable currency.

4.23 SDR holdings and SDR allocations should be recorded as gross assets and liabilities in the balance sheet of the entity that under domestic law is responsible for a member’s SDR Department positions, usually the central bank and in some cases the central government. Therefore, allocations of SDRs increase claims on nonresidents (reserve assets) and liabilities to nonresidents (foreign liabilities), initially by the same amount.

4.24 SDR allocations are classified as debt liabilities to nonresidents8 because (1) interest is payable to the SDR Department on the cumulative allocation, and arrears arise if payments are not made on time;9 and (2) a country would be required to repay its allocation of SDRs in certain circ*mstances such as upon termination of its participation in the SDR Department, cancellation of SDRs, or upon liquidation of the SDR Department. Annex 4.2 provides more detailed discussion on IMF-related accounts and their treatment in monetary and financial statistics.

Currency [F21]

4.25 Currency consists of notes and coins that are of fixed nominal values and are issued or authorized by central banks or governments. Currency is divided into domestic currency and foreign currency.

4.26 Domestic currency is the one that is legal tender in the economy and is issued by the central bank or government of that economy or of the common currency area to which the economy belongs. Any currencies that do not meet this definition are foreign currencies to that economy, representing claims on nonresident central banks or governments.

4.27 Some countries issue gold or precious metal coins, which are held for their intrinsic value, or commemorative coins, which are held for their numismatic value. If not in active circulation, such coins should be classified as nonfinancial assets rather than as financial assets. Those commemorative coins that differ only slightly from the standard coins in circulation, are issued at or near their face value, are fungible with the standard coins in circulation, and for which the issuing authority has a liability to redeem them, are classified as currency (see also paragraph 6.25).

4.28 Central bank or central government holdings of unissued currency are nonfinancial assets and are valued at cost.

Deposits

4.29 Deposits are nonnegotiable contracts that represent the placement of funds available for later withdrawal. A deposit is usually a standard contract, open to the public at large, that allows the placement of variable amounts of money. Deposits include all claims that are (1) on the central bank, other depository corporations (ODCs), other financial corporations (OFCs), and, in some cases, other institutional units; and (2) represented by evidence of deposit. The category of deposits comprises transferable deposits and other deposits.

Box 4.1

Debt Securities: Some Common Types

Short-term securities sold on a zero coupon (or discount) basis

• Treasury bills and other securities issued by a central government or its agencies

• Other securities issued by state and local government

• Commercial and financial papers issued by financial and nonfinancial corporations

• Negotiable certificates of deposit issued by other depository corporations (ODCs)

• Bankers’ acceptances

Long-term securities sold on a fixed-rate coupon basis

• Central government bonds

• Bonds issued by state and local governments

• Corporate bonds

• Negotiable certificates of deposit issued by ODCs

• Preferred stock (if qualifying as debt rather than equity)

Pass-through and other asset-backed securities (including principal-only and coupon-only strips)

• Collateralized mortgage obligations

• Collateralized debt obligations

• Mortgage-backed bonds

Debentures: unsecured or uncollateralized debt security backed only by the creditworthiness of the issuer

Debt securities with embedded financial derivatives

• Denominated in a foreign currency1

• Variable interest rate (including with interest caps, floors, or collars)1

• Interest and/or principal indexed to equity values, commodity prices, or other reference variables

• Callable at the option of the issuer

• Puttable at the option of the holder

• Convertible to equity shares

• Extendable maturity

• Credit derivative features

1 Included under the broadest characterization of embedded financial derivatives.

Box 4.2

Debt Securities: Some Types Traded in International Markets1

Short-term securities. Eurocurrency instruments, denominated in U.S. dollar, euro, yen, etc.

• London certificates of deposit. Negotiable certificates of deposit issued by a London bank or a London branch of a foreign bank

• Euro commercial paper and euronotes

• Euro bankers’ acceptances.

Long-term securities. International bonds are those issued outside the domestic market of the borrower.

• Global bonds. Simultaneously placed in the euro area and one or more domestic markets with securities fungible between the markets

• Eurobonds. Issued by a borrower in a foreign country, denominated in a euro currency (U.S. dollar, euro, yen, etc.), and underwritten and sold by an international syndicate of a financial corporation

• Floating-rate notes (FRNs). Medium- to long-term securities with variable rates usually linked to the London interbank rate (offer, bid, or average rate).

1 For descriptions of these and other instruments, see the Coordinated Portfolio Investment Survey Guide (2002), Appendices V and VI.

Specific types of debt securities20

4.59 Negotiable loans. Loans that have become negotiable de facto are to be reclassified from loans to debt securities. For such reclassification, there needs to be evidence of secondary market trading, including the existence of market makers and frequent quotations of the instruments, such as provided by bid-offer spreads.

4.60 Preferred shares. Nonparticipating preferred stocks or shares (also called preference shares) that pay a fixed income but do not provide for participation in the distribution of the residual value of an incorporated enterprise on dissolution are included in debt securities.

4.61 Convertible bonds are fixed interest rate bonds that may be converted into equity and should also be classified as debt securities prior to the time when they are converted.

4.62 Bankers’ acceptances (BA) are treated as debt securities from the time of acceptance (even though funds may not be exchanged until a later stage) and classified under the category of debt securities. A BA involves the acceptance by an FC, in return for a fee, of a draft or bill of exchange and the unconditional promise to pay a specific amount at a specified date. A BA must be tradable. The BA represents an unconditional claim on the part of the holder and an unconditional liability on the part of the accepting FC; the FC’s counterpart asset is a claim on its customer. (See also Bills of exchange and acceptances in the subsection Loans.)

4.63 Private placements of debt securities involve an issuer selling debt securities directly to a small number of investors without public offering. The creditworthiness of private placements is not assessed by credit rating agencies and as the securities are generally not resold or re-priced, their secondary market is thin. To the extent that some private placements can be (and are) traded among investors, the criterion of negotiability for debt securities is met.

4.64 A structured debt security combines a debt security, or a basket of debt securities, with a financial derivative, or a basket of financial derivatives. This financial derivative, or the basket, is embedded in and is, therefore, inseparable from the debt security. When the debt security and financial derivative components of a financial instrument are separable from each other, they should be classified accordingly; but if they cannot be separated, then the instrument should be valued and classified according to its primary characteristics, either as a debt security or financial derivative.21

4.65 Depository receipts (DRs)22 allow a nonresident institutional unit to introduce its equity or debt into another market in a form more readily acceptable to the investors in that market. A resident deposit-taking corporation will acquire the underlying securities and then issue receipts in a currency more acceptable to the investor. After issuance, DRs can be traded freely among investors, either on a stock exchange or OTC. DRs are classified according to the underlying financial instrument backing them (i.e., as debt securities or equity). This is because the issuer (the deposit-taking corporation) does not take the underlying securities onto its balance sheet, but rather acts as a facilitator.

4.66 A promissory note is an unconditional promise to pay a certain sum on demand on a specified date. Promissory notes are one specific type of debt securities within the category bills, which give holders the unconditional rights to receive the stated sums on a specified date. Bills are issued and usually traded in organized markets at a discount to face value depending on the rate of interest and the time to maturity.

Debt securities issued through securitization

4.67 Securitization involves the issuance of debt securities that are backed by financial assets (such as mortgage loans, claims on credit card holders, car loans, commercial and industrial loans), nonfinancial assets, or future income streams (such as from music record or ticket sales). Although future income streams are sometimes used in securitization transactions, these future streams are not recognized as an asset in macroeconomic statistics.23 Securitization of assets provides liquidity in assets that are otherwise not so liquid. For example, an originating mortgage lender could sell a portfolio of loans to a special purpose vehicle that issues securities to investors that are “backed” by the loans. In cases in which the originator issues asset-backed securities on its own books, the securitization may take place without the creation of a separate entity. Examples of debt securities issued through securitization are provided in Annex 4.1.

Indexed securities

4.68 Indexed debt securities are instruments for which either the coupon payments (interest) or the principal or both are linked to an index such as a price index, an interest rate, an exchange rate index, or the price of a commodity. These securities are classified as variable-rate instruments. The recording of revaluations and interest for indexed financial instruments is discussed in Chapter 5 (paragraphs 5.53–5.59 and Annex 5.2, paragraph 5.271).

Repurchase agreements and securities lending

4.71 A securities repurchase agreement (repo) is an arrangement involving the sale of securities for cash, at a specified price, with a commitment to repurchase the same or similar securities at a fixed price either on a specified future date (often one or a few days hence, but also further in the future) or with an “open” maturity.26 A repo is viewed from the perspective of the provider of the securities (i.e., the cash taker). The agreement is called a reverse repo when viewed from the perspective of the securities taker (i.e., the cash provider).

4.72 Repos convey the legal ownership of the securities to the cash provider, which entitles the cash provider to sell the securities to a third party (on-selling). Despite conveyance of the legal ownership to the cash provider, the economic ownership is retained by the cash taker (i.e., the securities provider), as the cash taker retains the market risk and ownership benefits, other than the right of sale, including holding gains or losses and interest income on the securities. Because of these features, a repo is similar to a loan that is collateralized by the securities underlying the agreement.

4.73 Repos may be used for a variety of different purposes, for example, as a means of financing the acquisition of the underlying instrument, for cash borrowing, or as a means of covering a negative position (“short” position) in the security. In some circ*mstances, substitution of the securities may be permitted.27 To provide for protection against adverse movements in the price of the security, a “haircut” is subtracted from the market value of the asset used as collateral; with the size of the “haircut” reflecting the perceived risk associated with holding the asset. An additional margin deposit may be required to cover residual counterparty risk. Repurchase agreements are usually “cash-driven,” where the motivation is to obtain cash with the security provided as collateral; but they may be “security-driven,” where the motivation is to obtain a security when it has “gone special” (i.e., when it has become difficult to obtain).

4.74 A buy-sell-back is one type of repo, which involves a spot sale of a security with a simultaneous forward purchase. Buy-sell-backs have the same economic effect as a securities repo. The main difference between the two arrangements is that in a repo both transactions are conducted under the same contract, whereas under a buy-sell-back the transactions are conducted under two legally independent contracts: a spot transaction and the opposite forward transaction.

4.75 In macroeconomic statistics, securities repurchase agreements are treated as collateralized loans or deposits, rather than as outright sales of securities. Generally, a repurchase agreement is classified as a loan. However, repurchase agreements with money-holding sectors resembling a deposit, where the DC is the cash taker, should be classified as other deposits and may be included in broad money. The securities should remain on the balance sheet of the cash taker and a new financial asset (i.e., a loan or a deposit) should be recorded as an asset of the cash provider and a liability of the cash taker.

4.76 Securities acquired under reverse repos may in turn be repoed. In such circ*mstances, the securities under repo support two loan transactions—the cash provider’s claim on the cash taker under the original repo and the claim of the “on-buyer” (i.e., the cash provider under the new repo) on the original cash provider (i.e., the cash taker under the new repo, who is also the cash provider under the first repo/reverse repo). The party with the loan asset from the reverse repo does not net it against the loan payable in the subsequent repo, because the counterparties to the two transactions are different. Double-counting of the holding of the security should not arise in such a case, because the securities underlying both the first and the second repos continue to be recorded only on the balance sheet of the original cash taker.

4.77 Consistent with the 2008 SNA and other statistical manuals, this Manual makes a specific recommendation on the statistical treatment of securities that are acquired under reverse repo and are on-sold outright. Although a cash provider should not record the acquisition of a security under a reverse repo as a transaction in securities, if the security so acquired is on-sold outright, a transaction in the security should be recorded by the cash provider (and by the outright purchaser). This is known as “short selling”28—the sale of a financial asset not currently held on balance sheet—and results in a recorded short position in the security for the on-seller. This treatment reflects the economic ownership in that the holder of the negative position is exposed to the risks and rewards of the security, in an equal and opposite way, as the party in a long position. Interest accrues on the negative position negatively (i.e., the negative position becomes larger). In aggregate, the recording of a negative position overcomes the double counting that would otherwise result from the security being recorded as an on-balance-sheet asset holding of the third party that has purchased it outright, as well as still being recorded on balance sheet as a security asset holding of the cash taker under the repo.

4.78 In this instance, additional information may be required for a fuller understanding of the repo market and to determine who is holding the instrument. It is useful for the analysis of liquidity, leverage, and vulnerability, to identify the parties to repo transactions. Accordingly, it is recommended that when a repo (reverse repo) is undertaken, data on the counterparty to the repo (reverse repo) transaction (resident sector or nonresident) and the instrument and sector of issuer (e.g., government debt security) are made available to the compilers, for ensuring appropriate recording in sectoral balance sheets.

4.79 A tri-party repo is a transaction mediated by a third party, typically a custodian bank or central counterparty, to reduce counterparty risk for the lender. Tri-party repos are structured in a way that transfers the risk to the third party as follows: (1) the borrower enters into a repurchase agreement with the third party, borrowing the required amount and pledging collateral to the third party as required; (2) the lender enters into a reverse repurchase agreement with the third party; and (3) the third party administers the transaction and the collateral, acting as the direct counterparty to the seller and the buyer, thus assuming the risk of default of the borrower.29

4.80 Securities lending is an arrangement whereby a security holder transfers securities to a borrower, subject to the stipulation that the same (or similar)30 securities be returned on a specified date or on demand. “Full, unfettered ownership” is transferred to the borrower, but the risks and benefits of ownership (economic ownership) remain with the original owner.31 The practice is undertaken by owners of securities to raise the return on the securities and/or to reduce the cost of custody.

4.81 Securities lending arrangements are divided into two major categories that are delineated by the type of collateral—either cash or securities—that is provided to the lender of the securities.32 The borrower of the securities usually provides collateral that is of equal value to, or greater value than, the value of the securities being lent.

4.82 Securities lending backed by cash collateral is similar to a repo, has the same economic effect as a repo, and so is treated statistically in the same way as a collateralized loan.

4.83 Securities lending that is backed by collateral other than cash (or that is not collateralized) should not be treated as a transaction and should be recorded off balance sheet by both the lender and borrower of the securities. If the securities are on-sold outright to a third party, the “borrower” of the securities should record a security transaction, and a reduction in security assets, resulting in a “short” position in that security asset. Similar to repos, this approach overcomes the double counting that would otherwise result, in the aggregate, from the security being recorded as an on-balance-sheet asset holding of the third party that has purchased it outright as well as still being recorded on balance sheet as a security asset holding of the original lender of the securities.33

4.84 Similar to securities received under a repo that are on-sold, additional information may be required when a security acquired under a securities lending transaction has been on-sold.

Gold swaps and gold loans

4.85 A gold swap34,35 involves an exchange of gold for foreign exchange with an agreement that the transaction be reversed at an agreed future date at an agreed gold price, so that the original owner remains exposed to the gold market. Gold swaps are forms of repurchase agreements undertaken between central banks or between a central bank and other types of FCs. Its features are similar to those of a repo and, therefore, they should be treated in a similar way.

4.86 Gold swaps should be recorded as collateralized loans when they involve the exchange of gold for foreign exchange. Consequently, the gold remains on the balance sheet of the original owner and is not taken onto the balance sheet of the cash provider—in the same manner in which a repurchase agreement is recorded. If gold received under a gold swap is swapped again, the same treatment applies: it is treated as a collateralized loan by both parties. In the event that the gold received under a gold swap is sold outright, the seller (if not a monetary authority) should record a “short” holding of nonmonetary (i.e., commodity) gold and the purchaser (if not a monetary authority) should record on its balance sheet a holding of nonmonetary (i.e., commodity) gold. If the gold acquired under a gold swap is sold outright by a nonmonetary authority to a monetary authority, monetization will be involved.36 If gold received under a gold swap is sold outright by a monetary authority (whether to a monetary authority or another party), it should record on its balance sheet a negative position in monetary gold. The transaction will involve demonetization if the counterparty in this instance is not a monetary authority.

4.87 Gold loans (or gold deposits) may be undertaken to obtain an income return on gold. The gold that is placed on loan (or deposit) may be either a financial asset (i.e., monetary gold) or a nonfinancial asset (i.e., nonmonetary gold). The gold remains on the books of the gold lender, and the lender retains the exposure to the market risk arising from movements in the market price of gold. Gold loans (or deposits) are not backed by cash collateral and, in some cases, are not backed by any collateral. However, the gold may be on-sold by the borrower. This Manual (and the 2008 SNA and other statistical manuals) recommends that gold loans be treated as off-balance-sheet items (i.e., not recorded as assets or liabilities, and transactions). If the gold is on-sold, however, the on-selling party (i.e., the gold borrower) should record a gold transaction, in the same manner as to gold swaps. (See also paragraph 4.44.)

4.88 Recording repos, securities lending, gold swaps and gold loans (reverse transactions) under the collateralized loan approach as set out in this Manual, is in line with the economic ownership principles in the 2008 SNA.

Financial leases

4.89 A financial lease is a contract under which the lessor, as legal owner of an asset, conveys substantially all the risks and rewards of ownership of the asset to the lessee. The lessee, therefore, becomes the economic owner of the asset. A financial lease involves imputing a loan. Under a financial lease, the lessor is shown as making a loan to the lessee, which the lessee uses to acquire the asset. Thereafter, the leased asset is shown on the balance sheet of the lessee and not of the lessor, the corresponding loan is shown as an asset of the lessor and a liability of the lessee. Payments under the financial lease are treated not as rentals on the asset but as payments of interest, possibly a service charge (financial intermediation services indirectly measured), and repayments of principal on the imputed loan. Such financial leases are classified as loans.

4.90 The statistical treatment of financial leases is designed to move away from the legal arrangements to capture the economic substance of such arrangements, by treating assets under a financial lease as if they were acquired and owned by the user who financed the acquisition with a loan. For example, if a bank leases a cargo vessel to a transportation company, the company is deemed to have taken economic ownership of the vessel. The vessel is therefore shown as an asset in the balance sheet of the transportation company, while a loan is recorded as a liability.

4.91 Examples of situations that would usually lead to a recording of a financial lease include:

• a. The lease transfers legal ownership to the lessee at the end of the lease term; or

• b. The lease has the option for the lessee to acquire legal ownership at the end of the lease term at a price that is sufficiently low that the exercise of the option is reasonably certain; or.

• c. The lease term is for the major part of the economic life of the asset; or

• d. At inception, the present value of the lease payments amount to substantially all of the value of the asset; or

• e. If the lessee can cancel the lease, the lessor’s losses are borne by the lessee; or

• f. Gains or losses in the residual value of the residual asset accrue to the lessee; or

• g. The lessee has the ability to continue the lease for a secondary period for a payment substantially lower than market value.

4.92 These conditions in the lease contract may not, however, demonstrate conclusively that substantially all of the risks have been conveyed; for example, if the asset is conveyed to the lessee at the end of the lease at its fair value at that time, then the lessor holds substantial risks of ownership. The lease is then called an operating lease. Financial leases are also called finance leases, capital leases, or full-payout leases, highlighting that the motivation is to finance acquisition of the asset. Accounting practices recognize financial leases in the same way as in macroeconomic statistics.

Credit card debt

4.93 Credit cards are used as a convenient means of payment for purchases and as a means of financing purchases. Cardholders usually do not incur financing charges if the entire balance due for their credit-card purchases is paid within each billing cycle, typically monthly. Card holders who carry credit card balances on a month-to-month basis are charged interest on all outstanding balances, including the balances generated by new credit card purchases during the month leading up to the billing cycle. All credit card balances should be classified as loans, and interest accrued and not yet paid are recorded as for loans.

Loan participations

4.94 A loan participation occurs when two or more investors (usually FCs) jointly fund a loan to a single borrower, either through a loan syndication—a loan origination by a syndicate, or group, consisting of a lead creditor and one or more other creditors who jointly finance the loan—or when portions of an outstanding loan that was originated by one creditor are purchased by various creditors. Each syndicate member records the amount of the loan participation that the member has funded.

4.95 A loan participation should be disaggregated by economic sector of the debtor and each creditor. Debtor-creditor relationships for loan participations are determined by contractual arrangements. If the loan participation is on an assignment basis (the most prevalent type), each participant has a direct creditor claim on the debtor. If the loan participation is on a nonassignment basis, the initial contract between a single creditor and the debtor remains intact, but the original creditor incurs a liability to each purchaser of a participation in the loan. The entries for the loan transactions are:

• a. Assignment basis. Each participant classifies the amount of the loan participation as a direct claim on the original debtor. The debtor records the loan participations as individual loans, disaggregated by economic sector of the creditor. The originator of the loan participation would show a loan claim on the debtor only to the extent that the originator retained a participation in the loan.

• b. Nonassignment basis. The original creditor/debtor relationship remains intact, and a new set of creditor/debtor relationships is created. The original creditor continues to record a loan claim on the debtor, and the debtor continues to record a loan to the original creditor—in the full outstanding amount of the loan. In addition, the original creditor records a loan liability to each participant in the outstanding amount of participation, classified by economic sector of the participant. Each participant shows the outstanding amount of the participation as a loan claim on the original creditor, classified by the economic sector of the original creditor. An FC may specialize in originating loans that are to be sold (usually, shortly after origination) to another FC that intends to hold the loans to maturity.

  See Also

  Financial instruments — DerecognitionCan a Bank Take Money From Your Account Without Your Permission?Offsetting | Croner-i Tax and AccountingIAS 39 — Financial Instruments: Recognition and Measurement

4.96 Loan participations that, after initial purchase, are to be held to maturity should continue to be classified as loans. If structured as a negotiable instrument, all syndicate participants should classify the loan participations as debt securities, resulting in the single classification, as debt securities, for the entire syndicated loan.

4.97 Collection and disbursem*nt of the interest and principal payments are usually on a pass-through basis. The FC that sold the loan participations (or its agent) records the interest and principal payments receivable from the debtor and, for a fee, passes the amounts payable to the loan participants (even if the seller of the loan participations no longer holds a participation share).

Bills of exchange and acceptances

4.98 A bill of exchange is an unconditional order written and signed by one party (drawer of the bill), requiring the party to whom it is addressed to pay on demand, or at a fixed or determinable future time, a specified sum to order or to the bearer. Bills of exchange—sometimes called trade bills or simply bills—are most often associated with foreign trade, but also may be used for domestic trade. Bills of exchange are often called sight drafts or time drafts, depending on whether payable on demand or payable by a specified future date. A bill of exchange is an order to pay, rather than a promise to pay. When it is received and “accepted”—stamped37 and signed—by the party on whom it is written (i.e., the drawee), the bill of exchange becomes a promissory note38 and is designated as an acceptance.39

4.99 An acceptance is classified within loans, debt securities, or trade credit, depending on the characteristics of the credit instrument. Those acceptances that are eligible for rediscounting in a secondary market or by a central bank are usually known as bankers’ acceptances and classified as debt securities (see paragraph 4.62). Acceptances ineligible for rediscounting are designated as other acceptances and are classified as loans or trade credit depending on the nature of the acceptance.40 The loans and debt securities created through acceptances include:

• a. Exporter credit. The drawer (exporter) may hold the acceptance and, at maturity, receive payment (usually channeled through the exporter’s bank) from the drawee (importer). The drawer would classify the acceptance as a trade credit claim on the drawee.

• b. Export bill. Instead of holding the acceptance, the drawer (exporter) may rediscount the acceptance at a DC. If ineligible for further rediscounting, the acceptance should be classified as a loan that the DC has extended to the drawee (importer). If eligible for rediscount in the bankers’ acceptances (BA) market and/or at the central bank, the acceptance should be classified within debt securities and, for purposes of sectoral classification, should be attributed to the economic sector of the drawee (importer), who is the original issuer.

• c. Import bill. An importer may arrange an acceptance that calls for the exporter to be paid from the proceeds of a loan that the importer obtains from an ODC that will make the payment. The credit advanced to the importer is classified as a loan by the ODC. The loan remains in the DC’s loan portfolio until repaid by the importer.

• d. Banker’s acceptances. Export and import bills that meet the BA eligibility requirements are sold to BA investors, principally to FCs, NFCs, and nonresident institutions. For classification by debtor, the BA should be attributed to the economic sector of the drawee of the bill of exchange. For example, the BA based on an export bill drawn on an importer should be classified within debt securities issued by nonfinancial corporations (assuming the importer is a nonfinancial corporation). The purchaser of a BA that originated as an import bill drawn on an ODC should classify the BA within debt securities in the subcategory for claims on ODCs.

• e. Own acceptances. A DC may repurchase its own acceptances that it earlier issued in the bankers’ acceptance market. Holdings of own acceptances, representing a DC’s liability to itself, should be deducted from the liability account for bankers’ acceptance outstanding. The repurchased own bankers’ acceptance can be reintroduced as a debt security, if the DC decides to rediscount them in the bankers’ acceptance market during the remaining term to maturity.

Nonperforming loans

4.100 A loan is nonperforming when (1) payments of interest and/or principal are past due by 90 days or more; or (2) interest payments equal to 90 days or more have been capitalized or delayed by agreement; or (3) evidence exists to reclassify a loan as nonperforming even in the absence of a 90-day past due payment, such as when the debtor files for bankruptcy. Once a loan is classified as nonperforming, it (or any replacement loans) should remain classified as such until payments are received or the principal is written off on this or subsequent loans that replace the original.

4.101 Impaired loan trading. Loans sold in secondary markets range from high-quality loans (those with little credit risk) to nonperforming or otherwise impaired loans for which repayment is highly uncertain, or even unlikely. Transactions in nonperforming or otherwise impaired loans often involve purchases at deep-discounted prices (i.e., at well below the nominal value, or carrying amount, of the loans), reflecting the potential default on interest and principal payments for significant proportions of the loan portfolios purchased. These instruments should be classified as loans even if sold at a fraction of nominal value unless there is evidence of secondary-market trading, including the existence of market makers, and frequent quotations of the instruments, such as provided by bid-offer spreads. In the latter case, they are classified as debt securities and recorded at market value.

Distinction between deposits and loans

4.102 As a general principle, all financial instruments that can be used for direct payments to third parties should be classified as transferable deposits, regardless of the designation of the instrument (i.e., checking account, current account, giro account, nostro/vostro account, etc.). Transferable deposits cannot be classified as loans, because loans are not usable for payments to third parties.

4.103 Differentiating between an other deposit and a loan can be more difficult, in particular for interbank transactions. This Manual recommends that classification as an other deposit or as a loan is based on the instrument characteristics specified in the documentation, focusing on whether an early withdrawal for the creditor is possible or not. If the creditor does not have an option of early withdrawal, the instrument should be classified as a loan unless the creditor is a household or a nonfinancial corporation. Regardless of the classification, the financial instrument should have the same classification in the accounts of the creditor (holder of the financial asset) and the debtor (issuer of the liability).

Distinction between loans and debt securities

4.116 The defining feature that distinguishes between loans and debt securities is that the former are nonnegotiable financial contracts (evidenced by nonnegotiable documents), whereas the latter are negotiable instruments.42 Loans that become negotiable or tradable should be reclassified from loans to debt securities (see paragraph 4.59). In other words, debt securities should include loans that have become negotiable de facto. These debt securities result from the conversion of loans, with the recording of two other changes in the volume of assets (OCVA) flows, that is, liquidation of the loan and creation of the new debt security (see paragraph 5.21e).

Equity [F51]

4.117 Equity comprises all instruments and records acknowledging claims on the residual value of a corporation or quasi-corporation after the claims of all creditors have been met. Equity is treated as a liability of the issuing institutional unit.

4.118 Ownership of equity in legal entities is usually evidenced by shares, stocks, participations, DRs, or similar documents. Shares and stocks have the same meaning. Participating preferred shares are those that provide for participation in the residual value on the dissolution of an incorporated enterprise. Such shares are also equity securities, whether or not the income is fixed or determined according to a formula.

4.119 Shares (often called common stock) of a corporation may be widely held among many investors, closely held among a few investors, held within a single family, or held exclusively by one corporation or an individual. Shares in a corporation may be traded on securities exchanges, in OTC markets, or not traded.

4.120 Share holdings of FCs include shares of their own subsidiaries, as well as shares of unrelated corporations. Financial holding companies (see paragraph 3.183) hold shares of subsidiaries (principally, FCs) that they own and control. Subject to national law and regulation, FCs may hold shares in DCs, OFCs, NFCs, and foreign corporations. In a few countries, FCs (and, in some countries, other investors) hold central bank shares.

4.121 Corporations sometimes purchase their own shares in the market. The reacquired shares (called treasury shares) are not classified as asset holdings (i.e., as a corporation’s claim on itself) but rather are deducted from funds contributed by owners within the liability account for Equity and investment fund shares (see paragraph 5.157).

4.122 In the 2008 SNA (but not in this Manual for purposes of compiling monetary statistics), equities are subdivided into:

• a. Listed shares

• b. Unlisted shares

• c. Other equity.

4.123 Both listed and unlisted shares are negotiable and are, therefore, equity securities.

4.124 Listed shares are equity securities listed on an exchange. They are also referred to as quoted shares. The existence of quoted prices of shares listed on an exchange means that current market prices are readily available.

4.125 Unlisted shares are equity securities not listed on an exchange. Unlisted shares can also be called private equity; venture capital usually takes this form. Unlisted shares tend to be issued by subsidiaries and smaller scale enterprises, and they typically have different regulatory requirements, but neither qualification is necessarily the case.

4.126 Other equity is equity that is not in the form of securities. It can include equity in quasi-corporations (such as branches, trusts, and partnerships), unincorporated funds, and notional units for ownership of real estate and other natural resources. The ownership of some international organizations is not in the form of shares and so is classified as other equity. Ownership of currency union central banks is included in other equity.

4.127 Other equity is principally in the form of the accumulation of proprietor’s net additions to the equity of quasi-corporate enterprises—derived as (1) funds or other resources (including fixed or other assets) that the owners provide for capital investment by quasi-corporate enterprises; (2) accumulated retained earnings; less (3) withdrawals from quasi-corporate enterprises, which could include withdrawals of income, proceeds from the sale of fixed or other assets, transfers of fixed or other assets, and withdrawals taken from accumulated savings and reserves.

4.128 For quasi-corporations, all equity (including retained earnings and reserves) is assumed to be held by the owners. In some cases, the owners may provide financing to a quasi-corporation through the extension of loans, placement of deposits, purchase of debt securities issued by the quasi-corporation, or provision of trade credit to the quasi-corporation. The owners and the quasi-corporations should record such claims/liabilities as respectively loans, deposits, etc., in line with the contractual financial instrument, rather than as additions to the equity of quasi-corporations. The owner may also provide nonfinancial assets such as machinery, and this increases the value of other equity in the quasi-corporation to the owner.

4.129 Shares include DRs, if their underlying instruments are shares (see paragraph 4.65).

Investment fund shares or units [F52]

4.134 This category includes shares or units issued by all kinds of investment funds, including MMFs and non-MMF investment funds described in Chapter 3 (see paragraphs 3.144–3.146 and 3.149–3.151). Those units acquiring shares in the funds thus spread their risk across all the instruments in the fund.

4.135 MMF shares or units. As described in paragraph 3.146, MMF shares—with or without third-party payment features—are close substitutes for deposits and are included in broad money. For the compilation of monetary statistics, MMF shares or units should be separately identified on the asset and liability side of the sectoral balance sheets, with a further disaggregation on the liability side between MMF shares included in or excluded from broad money based on the creditor sector, and sectored by counterpart holding sector.

4.136 Non-MMF investment fund shares or units. As discussed in paragraph 3.149, these entities allow individual investors to acquire participation in a pool of financial assets and possibly real estate. The shares or units are not transferable and are typically not regarded as substitutes for deposits. For the compilation of monetary statistics, non-MMF investment fund shares or units should be separately identified on the asset and liability side of the sectoral balance sheets, with a further disaggregation on the liability side by counterpart holding sector.

Nonlife insurance technical reserves [F61]

4.143 Nonlife insurance provides cover to the policyholders against loss or damage suffered as a result of accident, fire, property loss, health-related expenses, etc. Nonlife insurance technical reserves consist of prepayments of net nonlife insurance premiums and reserves to meet outstanding nonlife insurance claims. This definition applies to both nonlife direct insurance and reinsurance:

• a. Prepayments of net nonlife insurance premiums. A buyer of an insurance coverage (the “insurance policy”) pays for this service an amount—called a premium—to the insurance provider. Typically, the client prepays the premium (the cost of the insurance policy) at the beginning of the period of insurance coverage. The insurance provider earns income from the insurance service provided to the client on an accrual (pro-rated) basis.47 The category includes prepayments for nonlife insurance policies which cover a wide variety of events such as accident, sickness, fire, theft, etc. The category also includes less-common types of premium payments, including those for reinsurance and deposit insurance.48 The category includes prepayments that insurance corporations have made to other insurance corporations—for example, a life insurance corporation’s prepayments for fire insurance provided by a nonlife insurance corporation. It also includes reserves for unexpired risks, which are reserves created at the discretion of the insurer if it considers that the funds kept in the unearned premium reserve are not enough to cover the perceived risk.

  Prepayment of nonlife insurance premiums is one of the categories of IPSGS for which there are both asset and liability positions in the sectoral balance sheets of FCs. Assets cover the amount of FCs’ prepayments for insurance services to all resident and nonresident insurers; liabilities cover the prepayment of insurance premiums received from all resident and nonresident policyholders by a resident insurance corporation.

  Prepayments in the asset account for IPSGS need to be disaggregated by prepayments made to resident (with breakdowns into ODCs49 and OFCs) and nonresident insurers. The disaggregation is needed to facilitate the compilation of total claims on and liabilities to (1) resident individual institutional sectors, and (2) nonresidents, as shown in the consolidated surveys compiled from the sectoral balance sheets discussed in Chapter 7.

• b. Reserves to meet outstanding nonlife insurance claims are funds set aside by insurance corporations to cover the amounts that they expect to pay out with respect to valid claims that are not yet settled or claims that may be disputed. Reserves against such outstanding claims are considered to be assets of the beneficiaries and liabilities of the insurance corporations. Policy benefits due to claimants are considered assets of the claimants. Until paid, these assets are held by insurance corporations as reserve liabilities.

  Other reserves, such as equalization reserves, may be identified by insurers; these are recognized as liabilities and corresponding assets, only when there is an event that gives rise to a liability. Otherwise, equalization reserves are internal accounting entries by the insurer that represent saving (recorded under the general and special reserves component of equity) to cover irregular catastrophes and, thus, do not represent any existing corresponding claims for policyholders.

4.144 For nonlife insurance, investment income attributable to policyholders generated from the assets corresponding to nonlife insurance technical reserves is treated as if it were (1) payable by the insurance corporations to policyholders, and (2) payable back to the insurance corporations in the form of premium supplements.

Life insurance and annuity entitlements [F62]

4.146 Life insurance and annuities entitlements are financial claims policyholders have against an institutional unit offering life insurance or providing annuities. This category consists of reserves of life insurance corporations and annuity providers for prepaid premiums and accrued liabilities to life insurance policyholders and beneficiaries of annuities. Life insurance and annuity entitlements are used to provide benefits to policyholders upon the expiration of the policy, or to compensate beneficiaries upon the death of policyholders, and, thus, are kept separate from shareholders’ funds. Annuity entitlements are the actuarial calculation of the present value of the obligations to pay future income until the death of the beneficiaries. These entitlements show the extent of financial claims that policyholders have against an institution offering life insurance or providing annuities and are therefore regarded as liabilities of the life insurance corporations and annuity providers, and assets of the policyholders and beneficiaries.

4.147 For life insurance, the income earned by insurance corporations from their holdings of assets to meet their liabilities (which equal the present value of expected claims from existing policyholders) is attributed to the policyholders as investment income on their claims on life insurance corporations, and then treated as being paid back to the insurance company as premium supplements.

Pension entitlements [F63] and nonpension entitlements [F65]

4.148 Pension entitlements are used to provide retirement benefits for specific groups of employees. Pension entitlements show the extent of 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 addition to funded liabilities of pension funds, this category includes liabilities of unfunded employment-related pension schemes. As well as pensions, some schemes may have other related liabilities, such as for health benefits, which are included under entitlements to nonpension benefits. For practical reasons, liabilities for nonpension entitlements may be included with those for pension entitlements.

4.149 Net implicit obligations for future social security benefits (other than employment-related retirement benefits) are not recognized as financial assets or liabilities, because there is no direct link between the contributions made and the benefits eventually payable, and those benefits may be varied to achieve policy objectives that have no direct connection with the concept of social protection schemes. However, if a social security fund also acts as an employment-related pension scheme (as is sometimes the case for benefits for present and former government employees), those pension obligations (but not implicit social security obligations) are included under this category.

Claims of pension funds on the pension manager [F64]

4.150 An employer may contract with a third party to administer the pension funds for its employees. If the employer continues to determine the terms of the pension schemes and to retain the responsibility for funding any deficit, as well as the right to retain any excess funding, the employer is described as the pension manager and the unit working under the direction of the pension manager is described as the pension administrator. If the agreement between the employer and the third party is such that the employer passes the risks and responsibilities for any deficit in funding to the third party in return for the right of the third party to retain any excess, the third party becomes the pension manager as well as the administrator.

4.151 When the pension manager is a unit different from the administrator, with the consequences that responsibility for any deficit or claims on any excess rests with the pension manager, the claim of the defined benefit pension fund on the pension manager is shown under this category.

Provisions for calls under standardized guarantees [F66]

4.152 Provisions for calls under standardized guarantees consist of prepayments of net fees and provisions to meet outstanding calls under standardized guarantees.

4.153 Standardized guarantees are issued in large numbers, usually for fairly small amounts, along identical lines. Standardized guarantees are not provided by means of a financial derivative (i.e., credit default swaps [CDSs]) nor in the form of a one-off guarantee, but for which the probability of default can be well established. These guarantees cover similar types of credit risk for a large number of cases. Examples include guarantees issued by governments on export credit or student loans. It is not possible to estimate precisely the risk of any one loan being in default, but it is possible to make a reliable estimate of how many out of a large number of such loans will default. It is, therefore, possible for a guarantor to determine suitable fees to charge for a guarantee working on the same principle as an insurance corporation for which the fees received in respect of many policies cover the losses by a few. The transactions and stocks for provisions for calls under standardized guarantee schemes recorded are similar to reserves for nonlife insurance; they include unearned fees and calls not yet settled.

4.154 Standardized guarantees can be contrasted with two other types of guarantees:

• a. Guarantees that meet the definition of financial derivatives (as defined in paragraph 4.156) protect the lender, on a guarantee-by-guarantee basis, against certain types of risk arising from a credit relationship by paying the guarantor a fee for a specified period. The guarantees covered are such that experience in the market allows the guarantor to apply standard master legal agreements or to make a reasonable estimate of the likelihood of the borrower defaulting and to calculate suitable terms for the financial derivative. CDSs are included in financial derivatives as options (see paragraphs 4.180 and 4.182).

• b. One-off guarantees occur in situations in which the conditions of the loan or of the security that is guaranteed are so particular that it is not possible for the degree of risk associated with it to be calculated with any degree of precision. These guarantees are not recognized as liabilities on the balance sheet of the guarantor until their activation, that is, when the event occurs that makes the guarantor responsible for the liability. These are off-balance-sheet contingent assets until activated.50

Financial derivatives [F71]

4.156 A financial derivatives contract is a financial instrument that is linked to another specific financial instrument, indicator, or commodity, and through which specific financial risks (e.g., interest rate risk, foreign exchange risk, equity and commodity price risk, credit risk) can be traded in their own right in financial markets.

4.157 The value of a financial derivative derives from the price of an underlying item: the reference price. The reference price may relate to a commodity, a financial asset, an interest rate, an exchange rate, another derivative, or a spread between two prices. The derivative contract may also refer to an index or a basket of prices. No principal amount is advanced that has to be repaid, and no investment income accrues. Financial derivatives are used for a number of purposes, including risk management, hedging, arbitrage between markets, and speculation. Valuation of financial derivatives is covered in Chapter 5.

4.158 The risk embodied in a financial derivative contract can be traded either by trading the contract itself, as is possible with options, or by creating a new contract embodying risk characteristics that match, in a countervailing manner, those of the existing contract. The latter practice, which is termed offsetability, occurs in forward markets. Offsetability means that it is often possible to eliminate the risk associated with a derivative by creating a new but “reverse” contract having characteristics that countervail the risk underlying the first derivative. Buying the new derivative is the functional equivalent of selling the first derivative, because the result is the elimination of the underlying financial risk. The ability to countervail the underlying risk in the market is therefore considered the equivalent of tradability in demonstrating value. The outlay that would be required to replace the existing derivative contract represents its value; actual offsetting is not required.

4.159 Financial derivative contracts are usually settled by net payments of cash rather than by the delivery of the underlying items. Exchange-traded contracts, such as commodity futures, are often settled before maturity. Cash settlement is a logical consequence of the use of financial derivatives to trade risks independently of the ownership of underlying items. Some financial derivative contracts, particularly those involving foreign currency, are, however, settled by deliveries of the underlying items. Once a financial derivative reaches its settlement date, any unpaid overdue amount is reclassified as accounts receivable/payable, as its value is fixed, and, thus, the nature of the claim becomes debt.

4.160 There are two broad types of financial derivatives—options and forward-type contracts. A major difference between option and forward contracts is that, whereas either party to a forward contract is a potential debtor, the buyer of an option contract acquires an asset and the option writer incurs a liability. Option contracts can expire without worth; options are exercised only if settling a contract is advantageous for the option holder.

4.161 In the financial markets there are a large assortment of financial derivatives in the broad categories of forward-type contracts and options contracts. A number of standard types of forward-type contracts and options contracts are shown in Tables 4.2 and 4.3, respectively. Examples of exotic options—those with relatively atypical contract terms—are described in Box 4.3.

Employee stock options [F72]

4.184 ESOs are options to buy the equity of a company, offered to employees of the company as a form of remuneration. An ESO is an agreement made on a given date (the “grant” date) under which an employee may purchase a given number of the employer’s shares at a stated price (the “strike” price), either at a stated date (the “vesting” date) or within a period of time (the “exercise” period) immediately following the vesting date. The exercise date is the time at which the option is exercised. It cannot be earlier than the vesting date or later than the end of the exercise period.

4.185 ESOs are issued as a form of employee compensation and as incentives for corporate employees to perform their duties in the best interests of the corporation’s shareholders. Transactions in ESOs are recorded in the financial account as the counterpart to the element of compensation of employees represented by the value of the stock option. For many corporations, ESOs are called executive stock options, because they are provided only to senior managers of the corporation. In some cases, stock options may be provided to suppliers of goods and services to the enterprise. Although these are not employees of the enterprise, for convenience they are also recorded under ESOs because their nature and motivation is similar in supporting the successful performance of the enterprise. Whereas the corresponding entry for stock options granted to employees is compensation of employees, the corresponding entry for stock options granted to suppliers is the goods and services supplied.

4.186 In some respects, executive stock options are similar to warrants that corporations issue on their own shares. Exercise of the stock options may result in an increase in the number of corporate shares outstanding, depending on whether the exercise of the options is honored by a corporation through: (1) issuing new shares; (2) drawing on own shareholdings (i.e., treasury stock); or (3) purchasing its own shares in the stock market for delivery to the option holder.

4.187 Consistent with the 2008 SNA subcategories of financial derivatives, this Manual recommends the compilation of separate data on ESOs in sectoral balance sheets. The data on ESOs should be available to compilers of monetary and financial statistics, either on request or as a memorandum item in the source data.

Financial instruments not classified as financial derivatives

4.188 For monetary and financial statistics purposes, the following types of financial instruments are not financial derivatives:

• a. A fixed-price contract for goods and services is not a financial derivative unless the contract is standardized so that the market risk therein can be traded in financial markets in its own right.

• b. Insurance and standardized guarantees are not financial derivatives. Insurance contracts provide individual institutional units with financial protection against the consequences of the occurrence of specified events. (In many instances, the value of this financial protection cannot be expressed in terms of market prices.) Insurance is a form of financial intermediation through which funds are collected from policyholders and invested in financial or other assets. These assets are held as technical reserves to meet future claims arising from the occurrence of events specified in insurance policies (i.e., insurance is used to manage event risk, primarily by the pooling, not the trading, of risk).

• c. Contingencies, such as one-off guarantees and letters of credit, are not financial derivatives. The principal characteristic of a contingency is that one or more conditions must be fulfilled before a financial transaction takes place. Contingencies are not instruments that facilitate the trading of specific financial risks.

• d. An embedded derivative (a derivative feature that is inserted in a standard financial instrument and is inseparable from the instrument) is not considered a financial derivative (see also paragraph 4.64). If a primary instrument such as a security or loan contains an embedded derivative, the instrument is valued and classified according to its primary characteristics—even though the value of that security or loan may well differ from the values of comparable securities and loans because of the embedded derivative. Examples are bonds that are convertible into shares, securities with options for repayment of principal in currencies that differ from those in which the securities were issued, or loans that can be prepaid without penalty.

• e. Gold swaps, central bank swap arrangements, and other similar arrangements that do not meet the definition of financial derivatives. (See the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6), paragraphs 5.91 and 6.102–6.104.)

4.189 The classification of margins required for financial derivatives depends on whether they are repayable or nonrepayable. The classification principles are discussed in paragraphs 4.47–4.51.

Trade credit and advances [F81]

4.191 Trade credit and advances consist of (1) credit extended directly by the suppliers of goods and services to their customers;53 and (2) advances for work that is in progress (or is yet to be undertaken) and prepayment by customers for goods and services not yet provided. For FCs, trade-credit receivables are usually associated with their sale of financial services, given that FCs seldom are vendors of goods and nonfinancial services. Trade-credit payables of FCs arise from their acquisition of goods and services provided by other institutional units, as well as from their purchases of financial services from other FCs.

4.192 Excluded from the category of trade credit and advances are:

• a. Claims or obligations arising from transactions in financial assets. A transaction is recorded at the time of change of economic ownership, which may precede settlement (payment) for the financial asset by several days or longer. For the recipient of the future payment, the claim is recorded in Other accounts receivable–other. The provider of the future payment records the obligation in Other accounts payable [MS]–other.

• b. Prepayment of insurance premiums. The advances subcategory within trade credit and advances applies to advance payments for work in progress and prepayments for goods and services, except for the prepayment of policy premiums for insurance services. The classification of these prepayments under the category of IPSGS facilitates the data compilation for the insurance corporation subsector.

4.193 Trade credits do not include loans to finance trade credit. Macroeconomic statistics distinguish between trade credits and loans by specifying that trade credits are a direct extension of credit by the suppliers of goods and services to their customers, whereas financing provided by third parties to finance trade are classified as loans. In general, trade credits are not interest-bearing. They may have payment terms whereby cash discounts are provided for prompt payment. The discount is viewed as an implicit interest that is avoided by early payment (see paragraph 5.227).

Other accounts receivable/payable–other [F89]

4.194 This category includes accounts receivable and payable, other than those described previously. It includes amounts related to taxes, dividends, purchases or sales of financial assets, rent, wages, and salaries. The other category also includes items such as deferred income and provisions for financial asset losses.

4.195 Other accounts receivable–other should be disaggregated into resident and nonresident categories and should cover the following items (not identified separately, unless noted otherwise):

• a. Dividends receivable on corporations’ shares, arising from the recording of dividends when the shares go ex-dividend (the date dividends are excluded from the market price of shares), rather than when the dividends are paid. When notified that a share has gone ex-dividend, the shareholder records the amount of the dividend receivable. For shares that are not traded publicly, the shareholder records the amount of the dividend receivable when the dividends are payable.

• b. Settlement accounts that are used to account for differences in the time of recording of: (1) purchases or sales of financial assets on the trade dates when changes of ownership occur, and (2) the subsequent payments for the financial assets on the settlement dates.

• c. Items in the process of collection are created when a DC receives a check or other transferable item from a customer. The usual procedure is to record the item in the customer’s deposit account, along with a contra-entry in Other accounts receivable–other. The entry is reversed after the item has been presented through the clearing system and has been paid by the DC (resident or nonresident) on which it was drawn. The posting Other accounts receivable–other is needed unless the item is settled on the same day as deposited,54 or has been recorded on an off-balance-sheet basis.55

  A special category of items in the process of collection arises if a central bank provides advance availability of funds to ODCs that have sent checks or other items to the central bank for collection, known as central bank float. In the absence of data adjustment, broad money would be overstated by the amount of the central bank float because the funds would appear in the accounts of the customers of both banks (i.e., the amount provided to DCs by the central bank in advance of the central bank’s collection of funds from the DC on which the items were written). Central bank float need not be shown as a separate category within Other accounts receivable–other in the sectoral balance sheet of the central bank. Central bank float is reported as a memorandum item to accompany the sectoral balance sheet of the central bank. Adjustment for central bank float can be made as part of the compilation of the Depository Corporations Survey, as described in Chapter 7 of this Manual. (See paragraphs 7.34 and 7.57d.)

• d. IMF quota subscription is recorded as an asset on the balance sheet of the central bank of the member country if the central bank has been designated as a depository or as both depository and fiscal agency for the country’s financial relationship with the IMF and records the IMF quota subscription, IMF No. 1 Account and IMF Debt Securities Account on a gross basis56 (see Annex 4.2). Quota is determined upon admission to IMF membership and can be adjusted under the IMF’s General Quota Reviews or on an ad hoc basis. Separate data on the IMF quota subscription should be shown under the nonresident category of Other accounts receivable–other in the sectoral balance sheet of the central bank.

• e. Miscellaneous asset items are all accounts not elsewhere classified in the FCs’ balance sheets and include suspense accounts (used for temporary recording of claims for which proper classification has not yet been determined; claims for which verifications, notifications, instructions, or other documentations are required for completing the transactions; and claims that are under litigation or otherwise in dispute), amounts related to taxes, and prepayments of import duties, rent, wages, or other operating expenses.

4.196 In exceptional circ*mstances, a relatively large transaction may be recorded in Other accounts receivable–other. If so, the FC should provide supplementary information to the compilers on the nature and amount of the transaction, as well as identification of the sector of the transactor (nonresident or, if resident, identified by economic sector), for ensuring appropriate recording in the sectoral balance sheet.

4.197 Other accounts payable [MS]–other should be disaggregated into resident and nonresident categories, and provisions for losses on assets. Resident and nonresident categories should cover the following items (not identified separately):

• a. Dividends payable that arise from the recording of dividends on the FC’s shares at the time when the shares go ex-dividend or are payable (see paragraph 5.168b), rather than when paid.

• b. Settlements accounts that record an FC’s obligations for payments (on future settlement dates) for financial assets that were purchased (on trade dates).

• c. Miscellaneous liability items, which include suspense accounts (the same as for assets discussed in paragraph 4.195e), amounts related to taxes, and accrued wages, rent, or other operating expenses.

4.198 Provisions for losses on assets57 are presented as if these items are liabilities and are classified as a separate component in Other accounts payable [MS]–other; although they are “internal accounts” rather than liabilities to creditors. This accounting treatment contrasts with the 2008 SNA, where such provisions are not recorded in the balance sheet. To be used in financial statistics, the data from the monetary statistics need to be adjusted to exclude provisions from Other accounts payable [MS]–other, in accordance with the methodology of the 2008 SNA.

4.199 The balance sheet presentation in accounting standards shows the estimated recoverable amounts of impaired financial assets that are obtained by direct write-down in the amount of the estimated impairment loss or through deduction of provisions for losses on assets. For monetary statistics, provisions for losses on assets are classified as Other accounts payable [MS]–other. Treatment of provisions for assets as liabilities facilitates the presentation of financial assets on a gross basis. It preserves a full set of balance sheet accounts without a deduction of provisions from the asset accounts on the balance sheet but differs from the 2008 SNA, which does not regard such internal accounts as liabilities.