Latest Developments in the Canadian Economic Accounts
An overview of revisions to the Financial and Wealth Accounts, 1990 to 2019

Background

Statistical revisions are carried out regularly in the Canadian System of Macroeconomic Accounts (CSMA) to incorporate the most current information available. Generally, these revisions are limited to the months or quarters within a given reference year, or, on an annual basis, to the preceding two to three years.

Periodically, comprehensive revisions are conducted, which generally entail revisions beyond the scope of the standard revision window. These provide an opportunity to enhance estimation methods and incorporate improved data sources and concepts.

A number of comprehensive revisions were incorporated in the third quarter 2019 release of the Financial and Wealth Accounts (FWA), which is comprised of the Financial Flow Accounts (FFA), the Other Changes in Assets Account (OCAA) and the National Balance Sheet Accounts (NBSA), and which represents an integrated set of accounts within the larger Canadian System of Macroeconomic Accounts (CSMA). The revisions were carried back to 1990 for certain instruments and sectors.

There were three main sources of revisions with the third quarter 2019 release of the FWA: the incorporation of new financial sectors, which resulted in new and restructured financial sub-sectors; the inclusion of additional instruments into a from-whom-to-whom (FWTW) framework; and statistical revisions arising from updates to specific concepts and methodologies. Altogether, these updates further align the FWA to international guidelines for compiling national accounts such as the System of National Accounts 2008 (SNA2008).

Extension to the existing classification of financial sectors

The FWA publishes a detailed set of accounts by institutional sector. The coverage of these sectors is comprehensive and greatly expands upon the five main institutional sectors that make up the domestic economy, namely non-financial corporations, financial corporations, general government, non-profit institutions serving households, and households. A detailed delineation of sub-sectors exists within the financial corporations sector. This is in recognition of their crucial role in the financial system at large and in their capacity as financial intermediaries and repositories of wealth.

The sector classification standard currently used in the CSMA is the Canadian Classification of Institutional Units and Sectors 2012 (CCIUS2012). This classification reflects many particularities of the Canadian economy and deviates to a degree from the SNA2008 recommendations. While the sector classification used in the FWA is generally aligned with the recommended Canadian and international standards, notable differences exist.

As a result, to improve sectoring within the FWA, selected financial sectors were re-aligned with the internationally standardized nomenclature and a catch-all sector was decomposed into more distinct and analytically useful sub-sectors where distinctive business models and intermediation activities could be better isolated. This will increase the analytical usefulness and transparency of the estimates by providing better distinctions between entities based on the risk they assume and the role they serve in the financial system. Additionally, many domestic and international stakeholders including policy makers, government departments and agencies, and international organizations require more detailed information to better understand and identify financial vulnerabilities within the financial system. More precise sector delineations help support these goals.

Table 1 presents the current classification of financial sectors used in the FWA, highlighting where changes have been made. Specifically, the previous sector “Other financial institutions” has been decomposed into four new sub-sectors. “Sales, finance and consumer loan companies” now includes other non-depository intermediaries and has been renamed to “Financial corporations engaged in lending”. “Asset-backed securities” has been re-titled “Financial vehicle corporations engaged in securitization transactions”. Finally, certain sectors have been grouped under the new aggregate “Other financial intermediaries, except insurance corporations and pension funds”.

Extension of the From-Whom-to-Whom framework

A complimentary approach for identifying systemic risk in the financial system and enhancing analytical usefulness in the FWA involves the compilation of financial transactions and balance sheet information within a From-Whom-To-Whom (FWTW) framework.  This approach explicitly identifies the financial interconnectedness across all sectors of the economy by linking financial assets and liabilities with their corresponding counterparties (i.e., a debtor borrowing funds from a creditor represents the two sides of a contractual loan agreement). This greatly aids in the identification of financial vulnerabilities and how risk may impact the broader financial system.

With the third quarter 2019 release of the FWA three new instruments have been added to the FWTW data visualization tool: currency and deposits in both domestic and foreign currencies and consumer credit. In the case of currency and deposits there are multiple options for where depositors can place their money. This adds to the complexity of the counterparty relationships, but also provides a powerful tool for examining the coherence of estimates. For this reason, the development of FWTW estimates for certain instruments also resulted in statistical revisions at the aggregate level.

Other statistical, conceptual, and methodological revisions

Securities reconciliation and integration—equities

The International Accounts and Trade Division (IATD) at Statistics Canada produces information on securities statistics. This includes debt securities such as bonds and commercial paper and equities such as shares listed on public exchanges. As part of the comprehensive revision, updated information for debt securities, which had been previously incorporated into the FWA, was integrated across a number of instruments on the issuer (liability) side. Additionally, to coincide with IATD's release of detailed information on equities, the FWA conducted a reconciliation exercise to align listed share liabilities by institutional sector. Some differences exist between the FWA and IATD due to classification and methodological differences and these will be addressed going forward.

Revisions to other sectors and instruments

Table 3 summarizes other changes that were incorporated into certain FWA time series.


Future directions

There are other future developments planned for the FWA, including further incorporation of instruments into a from-whom-to-whom framework. Additionally, further alignment of the current FWA sector and category classification with international standards is under review. Lastly, the portion of the NBSA covering lending to both households and non-financial corporations will be expanded and estimated on a monthly basis as the Monthly Credit Aggregates program.