3. Institutional Units and Sectors

International Monetary Fund
Published Date:
July 2008
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3.1 The definition of institutional units and their grouping into sectors are covered in the MFSM, Chapter III. The concepts used in this Guide follow closely the 1993 SNA, the MFSM, and the Government Finance Statistics Manual 2001 (GFSM 2001). In addition, this Guide expands on issues that are relevant for compilers of monetary statistics and considers special cases whose classification is not straightforward.

3.2 This Guide deals with institutional units in their role as holders of financial assets, and focuses consequently on the classification and sectorization of their accounts in the financial system. The residency of institutional units will determine the foreign/domestic breakdown of assets and liabilities of the financial corporations (FCs). Similarly, the grouping of resident institutional units into economic sectors and subsectors will show the financial corporations’ claims on and liabilities to the different sectors of the domestic economy.

Institutional Units

An institutional unit is an economic entity capable, in its own rights, of owning assets, incurring liabilities, and engaging in economic activities and in transactions with other entities. (MFSM, ¶62)

3.3 Institutional units, as holders of financial assets and liabilities, constitute the structural building blocks for monetary and financial statistics. They hold financial assets in the form of cash, deposit accounts, securities, investments in mutual funds, life insurance policies, etc. They have liabilities in the form of loans from banks or other financial institutions, extensions of trade credits, their issuances of securities, and other financial obligations.

3.4 The 1993 SNA lists four main attributes of institutional units: (1) they are entitled to own goods or assets in their own rights; (2) they are able to take economic decisions and engage in economic activities; (3) they are able to incur liabilities on their own behalf; and (4) they have complete sets of accounts, or it would be possible to compile such accounts. Two main types of units may qualify as institutional units: persons or group of persons in the form of households, and legal or social entities whose existence is recognized by law.


3.5 A household may consist of an individual or more than one person. Persons constituting a single household own assets in common, assume liabilities on behalf of the whole household, and make collective decisions on expenditure. Therefore, it is meaningful to treat all the persons constituting a household as a single institutional unit. Special cases of individuals who live together and are considered a single household are described in the section on sectorization.

3.6 Economic activities undertaken by households—such as production and selling of goods and services—are treated as an integral part of the households themselves, unless legal entities are created separate from the households.

Legal or Social Entities

3.7 The other type of institutional units is legal or social entities that engage in economic activities and transactions in their own rights. Such units are responsible and accountable for the economic decisions or actions they take. The 1993 SNA identifies four main categories of legal or social entities constituting institutional units: (1) corporations, (2) quasi-corporations, (3) government units, and (4) nonprofit institutions (NPIs).


3.8 A corporation is a legal entity created for the purpose of producing goods or services for the market that may be a source of profit or other financial gains to its owner(s). It is collectively owned by shareholders who have authority to appoint directors responsible for its general management. The most relevant features of corporations may be summarized as follows: (1) their existence is recognized independently of other institutional units; (2) they are created for the purpose of producing goods and services for sale on the market at economically significant prices; (3) their ownership is vested in the shareholders collectively; (4) they are legally responsible and accountable for their actions; and (5) their control is ultimately exercised by the shareholders collectively. Other legal entities that have specialized functions and produce for the market—such as producers’ cooperatives, limited liability partnerships, or professional associations—are classified as corporations, too.

3.9 It is common for corporations to own shares in other corporations, establishing relationships between them. Although control of a corporation sometimes can be achieved with less than half of the total shares, a minimum participation of 50 percent has been established as a practical guideline to determine control. Some of the common forms of relationships between corporations are listed below.

  • Conglomerates or groups of corporations exist when a parent corporation controls several subsidiaries, some of which may control subsidiaries on their own.
  • Conglomerates owning subsidiaries or branches in other countries are called multinational corporations.
  • Holding corporations are corporations that control and direct groups of subsidiaries without having any significant production of their own. Very often, holding corporations are established for tax purposes, outside the countries in which the subsidiaries are located.
  • A corporation is a subsidiary of another corporation when the latter controls more than half of the former’s voting power or has the right to appoint or remove a majority of its directors.
  • A corporation is an associate of another corporation when the latter controls between 10 and 50 percent of the voting power of the former and thereby can exercise some influence over the policy and management of the former.
  • An ancillary corporation is a subsidiary wholly owned by a parent corporation and whose activities are confined to providing services to the parent corporation. Ancillaries are treated as integral parts of the parent corporations.1
  • Trusts are arrangements that provide for legal control of portfolios of assets and liabilities and specify the use of the portfolio holdings and the income generated thereby.
  • Special purpose entities (SPEs) are created to carry out a single, well-defined, and specific activity.


3.10 Quasi-corporations are unincorporated enterprises that function as if they were corporations and keep complete sets of accounts. For purposes of sectoring and subsectoring, they are treated as institutional units separate from the units to which they legally belong.

Quasi-corporations include the following:

  • Unincorporated government enterprises engaged in market production and operating in a similar way to publicly owned corporations.
  • Unincorporated units operated by households, engaged in market production, and operating as if they were privately owned corporations.
  • Resident unincorporated operations owned entirely or partly by nonresident units (including joint ventures, branches, offices, agencies, and ancillaries) that engage in significant activity within the country over long or indefinite periods. (MFSM, ¶73, corrected)

Government units

3.11 Government units are legal entities established by political processes that have legislative, judicial, or executive authority over other institutional units within specific areas. Their principal functions are to provide goods and services to the community as a whole on a nonmarket basis, and to redistribute income and wealth by means of transfer payments. Because government units do not charge economically significant prices,2 they finance their activities through taxes or other compulsory transfers from units in other sectors.

3.12 Government units may own unincorporated enterprises engaged in the production of market goods and services. If these enterprises are managed in a way similar to a corporation, with their own set of accounts, they are treated as quasi-corporations. If they do not meet these requirements, they remain part of the parent government unit.

Nonprofit institutions

3.13 NPIs are legal or social entities created for the purpose of producing goods and services, but whose status does not permit them to be a source of income, profit, or other financial gain for the units that establish, control, or finance them.

3.14 Although they are not a source of profit to other institutional units, NPIs can be market producers if they provide services for which they charge economically significant prices or fees. NPIs engaged in market production sell their output at prices that are economically significant, but any surpluses generated by their activities must be retained within the NPI. Market NPIs include all NPIs serving enterprises, except those controlled and mainly financed by government units (which belong to the government sector). NPIs created by business associations to promote their interests (market NPIs serving business) are classified as market producers, and their members’ contributions are treated as payments for services.

3.15 Nonmarket NPIs provide most of their output free of charge or at prices that are not economically significant. NPIs controlled and mainly financed by government are classified within the general government sector.3Control by government means that the government has the ability to determine the general policy of the unit.


3.16 The concept and coverage of residency for the monetary statistics are identical to those in the 1993 SNA and in the Balance of Payments Manual, 5th edition (BPM5). The separation between resident and nonresident units is a fundamental dichotomy that facilitates the estimation of the external position of the financial sector. The key concept for defining the residency of an economic unit is its center of economic interest.

An institutional unit is said to have a center of economic interest within a country when there exists some location—dwelling, place of production, or other premises—within the economic territory of the country on, or from, which it engages, and intends to continue to engage, in a significant amount of economic activity. (MFSM, ¶54)

3.17 Two aspects need to be highlighted: the economic unit must maintain at least one production establishment in the country, and it should plan to operate that establishment for at least one year.

3.18 Compilers of monetary statistics must be aware that residency is not based on nationality of the account holder, or on the currency of denomination of accounts. A common mistake when reporting monetary statistics is to classify foreign-currency-denominated accounts as those of nonresidents, irrespective of the center of economic interest of the account holders.4

Resident Units

3.19 An institutional unit is a resident of a country where it has a center of economic interest. In most cases, it is considered a resident if it has already engaged in economic activities and transactions on a significant scale in the country for one year or more, or if it intends to do so. Ownership of land and structures within the country is not a sufficient condition to define a center of economic interest, because the owner can be a resident of another country, having a center of economic interest in the latter.

3.20 Corporations or quasi-corporations are residents of a country if they intend to engage in a significant amount of production of goods or services or own land and structures there. They must maintain at least one production establishment in the country and plan to operate it indefinitely or over a long period of time. Additional criteria are the maintenance of a set of accounts covering local productive activities, proof of income taxes paid to the local government, or the existence of a substantial physical presence.

3.21 A household is a resident in the country in which its members maintain regular residence. All individuals who belong to the same household must be classified as residents in the same country.

3.22 Apart from this general definition, there are special cases where individuals or productive units should be considered residents of the country, and their accounts incorporated into the domestic assets and liabilities of the FCs.

Cross-border workers

3.23 Individuals who cross international borders to work (some or all of the time) remain residents of their home countries. These include seasonal workers who work part of the year in another country and then return to their households, and border workers who regularly cross the frontier (daily or weekly) to work in a neighboring country.

3.24 However, if these workers engage in substantial and sustained economic activity abroad, earn income, consume, maintain regular residence abroad, and return only briefly or infrequently to their original household, they cease to be considered a member of that household, and therefore are no longer considered a resident in the country in which the household is resident. In this case, these individuals clearly have a center of economic interest where they work and consume.

Staff of international organizations and technical assistance personnel

3.25 Although international organizations are, by definition, residents of the rest of the world (that is, nonresidents of the country where their enclaves are located), employees of these organizations are residents of the local economies where they have lived continuously for more than one year.

3.26 Technical assistance personnel on long-term (more than one year) assignment should be treated as residents of the countries where they work. Employees of international organizations on long-term assignment in a country different from the location of the headquarters of the organization are residents of the country where they perform their duties. If the assignment is shorter than one year, they are considered residents of the economy in which they reside on a longer-term basis.

Locally recruited staff of diplomatic representations

3.27 Locally recruited staff of embassies and other diplomatic representations continue to have their center of economic interest in the country where they live and in which the embassy (or representation) is located. Therefore, they should be considered residents of their home country.

Crew members of vessels or aircrafts

3.28 Crew members of vessels or aircrafts continue to be residents of the countries where they have their principal residence (even if they are outside the country for long periods of time) and not of the economies in which they stop or lay over but are not living.

Pension funds of international organizations

3.29 Pension funds of international organizations are treated as residents of the economy in which the organization is located, and are part of the other financial corporation (OFC) sector of that economy.

Subsidiaries or branches of multinational conglomerates

3.30 Subsidiaries or branches of a multinational corporation should be treated as units separate from the parent company, because they have their own balance sheets and retain legal responsibility for their corporate actions, and therefore are residents of the economy where they operate.

Offshore enterprises and offshore banks

3.31 Offshore units engaged in manufacturing processes (including assembly of components manufactured elsewhere) are residents of the economies in which the offshore enterprises are located. This treatment applies even if the units are located in special zones exempted from custom duties or regulations (free trade zones).

3.32 Similarly, offshore banks are considered residents of the country where they have their offices, and should be part of the other depository corporation (ODC) sector of the host country, if they issue liabilities included in the national definition of broad money.

Units operating mobile equipment

3.33 Mobile equipment can consist of ships, aircrafts, drilling rigs and platforms, railway rolling stock, etc. The same principles applied to determine the residence of an enterprise must be applied to an enterprise operating mobile equipment outside the economic territory where the enterprise is resident. If the operations take place in international waters or airspace, the unit has a center of economic interest where the operator maintains residence. If the operations take place in another economy, then the unit has a center of economic interest in this economy and is considered a resident there, if it has a separate set of accounts and pays taxes where it operates. Otherwise, production is attributed to the original operator, and the unit is a resident of the country where the operator resides.

Construction companies

3.34 Construction companies operating in a foreign country (for instance, for the construction of major projects like roads or dams) must normally open a site office in the country where the project is undertaken. Although the site office may have no separate legal identity, it may nevertheless be treated as a quasi-corporation and therefore as a resident of the country where the project is located. This is particularly applicable to large-scale projects with completion times of several years.

3.35 If the construction project will be finished in less than a year, it can be assumed that the parent company does not have a center of economic interest there, and the construction site can be considered an enclave outside the country in which the company has its headquarters. Consequently, the accounts of the site office should be recorded as accounts of nonresidents.

Ancillary corporations, holding corporations, and special purpose entities

3.36 Domestic ancillaries are treated as integral parts of the parent corporation, rather than as separate institutional units. However, ancillary corporations located in a country different from their parent corporations are treated as separate units, and considered residents of the country where they are legally established.

3.37 Holding corporations and SPEs are often constituted outside the country where their parent corporation resides, either for tax purposes or because of legal or accounting considerations. Even if these holding corporations and SPEs are bare trustees, not bearing any market or credit risk, they are treated as separate units and considered residents of the economic territory where they are established.

Multiterritory enterprises or entities

3.38 Multiterritory enterprises are single enterprises that have substantial operations in two or more territories, but for which branches cannot be identified as attributable to a single economy. Particular cases of multiterritory enterprises are binational (or multinational) public entities established to construct and operate hydroelectric projects on river borders, and bridges or tunnels that cross borders. The BPM5 (¶82) indicates that the operations of these corporations may be allocated in proportion to the amounts of financial capital each country has contributed, or that the enterprises may be treated as residents of the country where their headquarters are located with the premises in other countries treated as branches of a foreign corporation, though the first approach is preferable.

Nonprofit institutions

3.39 An NPI is a resident of the country under whose laws and regulations it was created, and in which its existence as a legal or social entity is officially recognized and recorded. When an NPI engages in charity or relief work on an international scale, it is necessary to specify the residence of any branches it may maintain in individual countries in dispensing relief. If an NPI maintains a branch or unit for one year or more in a particular country, that branch or unit should be considered a resident of that country.

National offices of regional central banks

3.40 A regional central bank (RCB) is an international financial institution that acts as an in-common central bank for the member countries of a currency union. If the structure of the currency union is such that the RCB has headquarters in one country and maintains national offices in each member country, these national offices (which act as the central banks for those countries) are treated as institutional units separate from the institutions’ headquarters and are considered residents of the countries where they are located.

3.41 If there are no national central banks (NCBs), the headquarters office of the RCB is not classified as a separate institutional unit, and the stock and flows for the assets and liabilities of the RCB are allocated to the individual member countries of the currency union on the basis of each member’s claim on the RCB.

Nonresident Units

3.42 Institutional units that have their center of economic interest outside the country are nonresidents, and their accounts are recorded as part of foreign assets or foreign liabilities, irrespective of the nationality of the account holder and of the currency of denomination of the accounts. In the monetary statistics, the most common types of nonresident accounts are correspondent accounts held in overseas banks, loans due to banks located outside the country, and accounts of international financial institutions (IMF, World Bank, etc.).

3.43 In addition to cases in which it is easy to identify the accounts of nonresidents, there are several cases in which it is not clear-cut that the account holder is a nonresident of the economy.

Migrant workers

3.44 Individuals who earn income, consume, and maintain regular residence abroad and who return only briefly or infrequently to their original households are no longer considered part of the household in their home country, but rather are residents of the country where they regularly work. Even if an individual continues to be employed and paid by an enterprise that is resident in his or her home country, that person should normally be treated as a resident of the host country if he or she works continuously for one year or more.

3.45 Very often, these individuals maintain deposit accounts in their country of origin for savings purposes or to have access to funds when they visit their country. Because migrant workers are nonresi-dents of their home countries, their accounts should be reported as nonresident accounts and therefore as foreign liabilities of the depository corporations (DC) sector. Similarly, any loan granted to a migrant worker in his or her country of origin should be reported as a loan to a nonresident. For ODCs, it is often difficult to identify accounts of migrant workers as nonresident accounts, because they are opened by providing national identification and a national address. In countries with a substantial proportion of their population who live and work abroad, special instructions should be issued to the banks with a view to identifying the accounts of migrant workers.

3.46 If the account opened by a migrant worker is a joint account with a resident of the country, or if the account holder authorizes a resident of the country to withdraw funds from such an account, then the account should be considered as belonging to a resident and should be reported under domestic liabilities.

Students and medical patients

3.47 Regardless of how long they study abroad, students should be treated as residents of their country of origin, as long as they remain members of households in their home countries. Accounts that they open in the country where they study should be reported, therefore, as accounts of nonresidents.

3.48 Medical patients staying abroad are also treated as residents of their country of origin, even if they stay longer than one year, as long as they remain members of households in their home countries.

Foreign diplomatic representations

3.49 Embassies and other diplomatic representations are enclaves of their governments in the host country and part of the economic territory of the represented government. Their accounts in the financial system of the host country are reported as accounts of nonresidents.

3.50 Employees sent by a government to work in its diplomatic representations continue to have a center of economic interest in their home country, irrespective of the length of their assignment in the foreign country. They continue to be residents in their home country, even if they live in dwellings outside the enclaves, and their accounts in the financial system are classified as accounts of nonresidents.

Military personnel

3.51 Military personnel stationed abroad, in an enclave of their home country (a military base) or in peace-keeping missions, continue to have their center of economic interest in their home economy, irrespective of the length of their assignments. Therefore, they are considered nonresidents of the country where they are serving. This is typically the case for North Atlantic Treaty Organization (NATO) military forces or the United Nations missions in postwar countries.

International organizations and aid agencies

3.52 International organizations are not considered residents of any national economy and, in particular, are not resident in the country in which they are located or conduct their affairs. They are treated as extraterritorial (that is, nonresident) by that economy. All accounts that these organizations have in the financial system of that country are treated as nonresident accounts. Holdings of securities issued by international organizations should be reported as a separate category under securities issued by nonresidents.

Regional central banks

3.53 The national offices of RCBs are considered residents of the countries where they are located. However, if a currency union has national offices, the headquarters office of an RCB should be classified as a separate nonresident unit that holds its own assets and liabilities. When compiling monetary statistics for the entire currency union, the RCB is a resident institutional unit of the currency union. Securities issued by an RCB headquarters should be reported by their holders as securities issued by a nonresident, rather than being allocated to the member countries of the currency union.

Sectorization of Institutional Units

Sectorization of domestic institutional units is a key element in the compilation and presentation of monetary and financial statistics. (MFSM, ¶80)

3.54 Adequate sectorization of the economy is fundamental for a proper compilation and presentation of monetary statistics. Appropriate sectorization of monetary and financial accounts allows identification of FCs’ claims on each resident sector and is key to the construction of financial statistics. The MFSM and this Guide recommend that the monetary and financial statistics be sectorized in accordance with the 1993 SNA, which groups similar kinds of institutional units according to their economic objectives, functions, and behavior.

3.55 In the 1993 SNA and the MFSM, the resident institutional units of the economy are grouped into five mutually exclusive sectors: (1) the FC sector, (2) the nonfinancial corporations sector, (3) general government, (4) the household sector, and (5) the nonprofit institutions serving households (NPISH) sector.5 These sectors are also grouped into subsectors, as shown in Box 3.1. A unit engaged in activities belonging to more than one sector and not having a separated set of accounts must be classified entirely in a single sector, based on the most prominent activity in which it engages.

Box 3.1.Main Sectors and Subsectors of the Economy

Financial corporations (FCs)
Depository corporations (DCs)
Central bank
Other depository corporations (ODCs)
Commercial banks
Merchant banks, savings and loan associations,
credit unions, rural banks, discount houses,
post office giro institutions, offshore banks, etc.
Other financial corporations (OFCs)
Other financial intermediaries
Finance companies, leasing companies, investment
banks, mutual funds, underwriters and dealers
in securities, pawnshops, special purpose enti-
ties, holding corporations, asset management
companies, etc.
Insurance corporations and pension funds
Insurance corporations
Pension funds
Financial auxiliaries
Public exchanges, brokers, bureaux de change,
financial derivative corporations, supervisory
agencies, bank restructuring agencies, solicitor
nominee companies, trusts, etc.
Nonfinancial corporations
Public nonfinancial corporations
Other nonfinancial corporations
General government
Central government
State government
Local government
Social security funds1
Nonprofit institutions serving households (NPISHs)

Alternatively, social security funds can be allocated to the other subsectors of general government on the basis of the level at which they are organized.

Alternatively, social security funds can be allocated to the other subsectors of general government on the basis of the level at which they are organized.

Financial Corporations

The financial corporations sector consists of all resident corporations and quasi-corporations principally engaged in financial intermediation or in related auxiliary financial activities. (MFSM, ¶82)

3.56 Through financial intermediation, these units raise funds by incurring liabilities on their own account to channel funds to other institutional units by way of lending or other forms of acquisition of financial assets. The most common units engaging in financial intermediation are commercial banks, but they are not the only ones. Some characteristics of financial intermediation include: (1) incurrence of liabilities to raise funds for lending; (2) transformation of financial instruments with respect to maturity, interest rate, currency of denomination, etc.; and (3) acquisition of credit and financial risks.

3.57 The distinction between intermediaries and non-intermediaries is sometimes a matter of degree, because all economic units are capable, in some way, of engaging in financial intermediation. Key factors in deciding if an institutional unit is part of the FC sector are incurrence of credit and financial risks, existence of a separate set of accounts for the financial intermediation activities, and the relevance of the provision of financial services within the total production of goods and services of the unit.

3.58 The following institutional units are not included in the FC sector:

  • Corporations or quasi-corporations that mainly sell goods or nonfinancial services and provide credit directly to their customers—for example, manufacturers or retailers that extend consumer credit under their own credit plans.
  • Individuals or households that make loans or buy and sell foreign currency, if they do not have separate and complete sets of accounts for their financial activities.

3.59 Within the FC sector, the MFSM distinguishes between DCs (comprising the central bank and ODCs) and OFCs.

Depository corporations sector

Central banks

The central bank is the national financial institution (or institutions) that exercises control over key aspects of the financial system and carries out such activities as issuing currency, regulating money supply and credit, managing international reserves, transacting with the IMF, and providing credit to other depository corporations. (MFSM, §86)

3.60 Central banks usually act as bankers to governments, holding central government deposits and providing credit in the form of overdrafts, advances, and purchases of government securities. In some countries, they also accept deposits from or provide credit to nonfinancial corporations (public or private) and/or households (generally, their own employees).

3.61 Central bank liabilities in the form of currency issuance, liabilities to ODCs, and deposits accepted from other sectors (excluding the central government) constitute the monetary base, which supports the expansion of money and credit. A few territories (Hong Kong Special Administrative Region, Scotland, and Northern Ireland) have authorized private banks to issue currency, fully backed by reserves held at the monetary authorities. Such liabilities of the monetary authorities to the private banks are a component of the monetary base in these territories.

3.62 Many central banks act as fiscal agents of their central governments or government affiliated units. Transactions and financial positions should be attributed to the central bank only when it is the principal creditor/debtor. When it acts only as an agent, the transactions or positions should be attributed to the unit that is the principal creditor/debtor. Key to determining the ultimate creditor/debtor is the acquisition of financial risks and the reaping of the benefits from the transactions.

3.63 Many central banks also regulate and supervise ODCs. If these activities are carried on within the structure of the central bank, they are included in the central bank subsector. However, if they are independent of the central bank, they are classified as financial auxiliaries, which are outside the central bank subsector.

3.64 In most countries, central banks are separately identifiable institutions subject to differing degrees of government control, while having some autonomy in the formulation and implementation of monetary policy. They have various names such as central bank, reserve bank, national bank, or state bank.

3.65 Apart from their headquarters, central banks usually have branches in various regions of a country. When compiling the central bank balance sheet, the accounts of all branches must be consolidated with the accounts of the headquarters. Other types of institutional arrangements may also be included in the central bank subsector.

Currency boards

3.66 Currency boards are independent monetary authorities that issue national currency fully backed by foreign reserve assets,6 at a fixed exchange rate vis-à-vis some major international currency. A currency board requires that the exchange rate be fixed to a major currency, with automatic convertibility at the fixed exchange rate, and a long-term commitment to the system. Although not engaged in all central banking functions, currency boards are part of the central bank subsector.

3.67 Countries and territories with long-standing currency boards are Brunei Darussalam, Djibouti, Hong Kong Special Administrative Region, and some members of the Eastern Caribbean Central Bank (ECCB). In the 1990s, renewed interest in the establishment of currency boards arose as a means of fighting inflation, and four Eastern European countries (Bosnia and Herzegovina, Bulgaria, Estonia, and Lithuania) introduced currency boards in their economies.

Government-affiliated agencies

3.68 In some countries, government-affiliated units perform central bank activities such as the issuance of coins and/or currency notes, the holding of international reserves, operation of exchange stabilization funds, or having financial relationships with the IMF. When the agencies undertaking such monetary authorities functions are institutional units separate from the central government, they should be included in the central bank subsector.

3.69 However, if these units remain financially integrated with and under the direct control and supervision of the government, they cannot be treated as separate institutional units, and any monetary authority functions carried out by the government should be recorded in the general government sector.

Currency unions and regional central banks

3.70 A common currency area consists of more than one economy and has an RCB with the authority to issue the legal tender of the area. To belong to this area, an economy must be a member of the RCB. Member countries of the currency union share a common currency and may have a single monetary and foreign exchange policy (if the currency union is also an economic union). At present, there are two kinds of currency unions (Box 3.2).

Box 3.2.Currency Unions and Regional Central Banks

Centralized Model
Banque Centrale des États de l’Afrique de l’Ouest (BCEAO)
Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo
Banque des États de l’Afrique Central (BEAC)
Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, Gabon
Eastern Caribbean Central Bank (ECCB)
Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines
Decentralized Model
European Central Bank (ECB)
Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Spain

3.71 In the centralized model, the currency union has an RCB owned by the governments of the member countries, and the central bank operations in each member country are carried out by branches or agencies of the RCB. This model is used by the Banque Centrale des États de l’Afrique de l’Ouest (BCEAO), the Banque des États de l’Afrique Central (BEAC), and the ECCB. The MFSM and this Guide recommend that the RCB not be treated as a separate institutional unit, but rather should allocate its transactions and positions to the individual member countries in proportion to each member’s claims on and liabilities to the RCB.

3.72 The decentralized model is the one adopted within the European Union through the creation of the European Central Bank (ECB). In the decentralized model, the currency union comprises an RCB and NCBs, which own the RCB and act as the central banks for the countries in which they are located. The monetary and foreign exchange policies are formulated and approved by the decision-making bodies of the RCB, whereas policy implementation (although coordinated by the RCB) is a responsibility of the NCBs. The MFSM and this Guide recommend that the headquarters office of the RCB be classified as a separate nonresident unit, holding its own assets and liabilities, and that each NCB be classified as resident of the country in which it is located. NCBs’ claims on the RCB headquarters should be recorded as claims on nonresidents.

3.73 Using either the centralized or decentralized model, the currency union needs to compile monetary statistics for the union-wide area, consolidating the accounts of the RCB headquarters and the accounts of the national branches or the NCBs, respectively. Foreign assets and liabilities of the RCB will reflect its claims on and liabilities to nonresidents of the currency union. Furthermore, the MFSM recommends that the sectoral balance sheets and surveys for countries in a currency union have a two-way classification of claims on and liabilities to nonresidents: those between resident FCs and nonresidents in other union countries and those between resident FCs and nonresidents outside the currency union. Claims on and liabilities to the headquarters office of the RCB should also be separately identified.

3.74 Data compilation for an individual country’s central bank subsector will differ according to the currency union model. In the centralized model, the financial assets and liabilities of the RCB are allocated among the member countries according to a predetermined formula. In the decentralized model, the country’s central bank balance sheet will be the NCB’s balance sheet, while its foreign assets and liabilities will reflect claims on and liabilities to non-residents outside the currency-union area; its claims on and liabilities to ODCs will cover all ODCs operating in the currency union.

3.75 When compiling the central bank balance sheet of a currency-union country, a crucial task is to allocate the liability for currency issuance among the countries’ central banks. The BCEAO and BEAC delegate the currency issuance to their member countries, and the banknotes are marked to show the country of issuance; hence, each country reports currency in circulation as the currency it has issued less currency in ODCs’ vaults. In the euro area, the amount of banknotes in circulation in each country is allocated every month in proportion to each NCB’s share of the ECB’s capital, after deducting an 8 percent allocation to the ECB’s balance sheet.

Other depository corporations

The other depository corporations subsector consists of all resident financial corporations (except the central bank) and quasi-corporations that are mainly engaged in financial intermediation and that issue liabilities included in the national definition of broad money. (MFSM, ¶92)

3.76 According to the 1993 SNA, financial intermediation is defined as a productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market. The role of financial intermediaries is to channel funds from lenders to borrowers by intermediating between them.

3.77 The most prevalent way in which financial intermediaries obtain funds is through acceptance of deposits from the public. They also issue bills, bonds, certificates of deposit, other securities, or other financial instruments. All financial intermediaries that issue liabilities included in the national definition of broad money are classified as ODCs.

Commercial banks

3.78Commercial bank is the most common designation of a financial corporation in the ODC sector. In the past in many countries, commercial banks and the central bank were the only financial institutions that issued liabilities included in the monetary aggregates. As a result of technological, legal, and financial innovations, ODCs with designations other than commercial bank have become prevalent in most countries. Therefore, the data in the Other Depository Corporations Survey (ODCS) must include not only all commercial banks operating in the country, but also all other institutions that issue liabilities that are included in the national definition of broad money.

3.79 The range of activities in which a commercial bank can participate varies widely among countries, depending on national banking regulations and practices and the sophistication of the financial system in each country.

Other deposit-taking institutions

3.80 Many other types of financial intermediaries accept deposits and/or issue other types of liabilities that are close substitutes for deposits and therefore are included in the national definition of broad money. Other deposit-taking institutions have various names, depending on their principal activities and the national naming conventions.

3.81 Among the corporations and quasi-corporations that may be included in the ODC sector are:

  • Merchant banks;
  • Savings and loan associations, building societies, and mortgage banks;
  • Credit unions and credit cooperatives;
  • Rural banks and agricultural banks;
  • Discount houses;
  • Money-market mutual funds;
  • Traveler’s check companies engaged mainly in financial activities; and
  • Post office giro institutions.

This list is neither exhaustive nor prescriptive. Compilers of monetary statistics should investigate the characteristics of an FC’s liabilities to determine whether the liabilities should be included in broad money, which determines whether the FC qualifies as an ODC.

3.82Merchant banks specialize in financial activities that facilitate trade and commerce, typically dealing in international financing, long-term lending, and underwriting of securities. They specialize in banking relationships with multinational and other large corporations and usually do not offer banking services to the general public.

3.83Savings and loans associations, building societies, and mortgage banks specialize in long-term lending for purchases of real estate. Traditionally, building societies and savings and loans associations were organized as mutual associations—that is, individuals who provided funds or borrowed were association members who had voting rights and control of the institutions. Legal and regulatory changes have relaxed the rules governing these institutions in many countries. Building societies raise funds in commercial money markets, and some savings and loans associations are more akin to commercial banks than to financial cooperatives.

3.84Credit unions are NPIs owned and controlled by their members. To open an account or to receive a loan at a credit union, an individual must first become a member. Credit unions accept deposits (technically, these may be designated as shares) and make various types of loans. In some countries, they are as closely regulated as commercial banks. In other countries, they are not as regulated and have relatively lenient reporting requirements, making collection of their data more difficult.

3.85Rural banks and agricultural banks are small community banks that provide financial services in rural areas. Because of the economic characteristics of their clients, they tend to specialize in microfinancing of rural activities. Collecting data from rural banks can be problematic: (1) in some countries, rural banks are not supervised by the central bank and do not have a legal obligation to report their data; (2) inadequate communication infrastructure in remote areas of the country may hinder regular reporting; and (3) sufficient staff resources for timely and accurate compliance with reporting requirements may be lacking.

3.86Discount houses act on behalf of, or transact mainly with, DCs. They raise funds primarily to finance investments in money-market instruments (for example, government bills, bankers’ acceptances, and certificates of deposit), and they purchase securities from individual banks for rediscounting with the central bank. If they issue liabilities included in the national definition of broad money, they are part of the ODC sector; otherwise they should be classified as other financial intermediaries within the OFC subsector.

3.87Money-market mutual funds, which raise money from the public to invest in short-term financial assets, sometimes offer the withdrawal of funds from shareholder accounts through checks payable to third parties. These third-party transfers sometimes are limited with respect to minimum amount or number of checks that can be written in a specified period. Shares in money-market mutual funds accounts—with or without third-party payment features—are close substitutes for deposits and often are included in the national definition of broad money.

3.88Traveler’s checks companies sell negotiable instruments that can be directly used in making third-party payments. Traveler’s checks, which have characteristics of both currency and liquid deposits, are sometimes included in the national definition of broad money.7 A corporation that issues traveler’s checks should be included in the ODC sector if it is a financial corporation and if the traveler’s checks are included in the national definition of broad money. If the issuer of the traveler’s checks engages principally in nonfinancial services (for example, American Express), it is classified as an other nonfinancial corporation (even if the traveler’s checks are included in broad money).

3.89 Post offices of some countries accept transferable and savings deposits, either on their own account or on behalf of third parties (for example, the treasury or another financial corporation). Account holders in post office giro institutions may make third-party payments or may withdraw funds from their savings accounts at other post offices of the country or foreign countries participating in the system. If this financial activity of the post office is managed independent of postal and telecom operations and has a separate set of accounts, it should be included in the ODC sector. If the deposit taking and transfer services are not separated from the nonfinancial operations, the postal system in its entirety is classified as a nonfinancial corporation. Data on deposits accepted by the postal system should be collected for inclusion in broad money. If the post office accepts deposits on behalf of the national treasury, the deposits should be reported by the treasury in the category of “central government deposit liabilities.”

Offshore banks and offshore financial centers

3.90Offshore banks are established in jurisdictions that provide financial and legal advantages such as low or no taxation, privacy, and avoidance of regulations such as reserve requirements or foreign exchange restrictions that are imposed on onshore financial corporations. They engage in various types of financial transactions, including deposit taking and extension of loans denominated in currencies other than the currency of the country in which they are located. However, they may be restricted from accepting deposits from residents of the country in which they are located.

3.91 According to the MFSM, offshore units engaged in trade and finance are residents of the economies in which they are located. This Guide recommends that offshore banks be included in the ODC sector if they transact with residents of the economy in which they are located and issue liabilities included in broad money. If they do not issue such liabilities, they should be classified as other financial intermediaries within the OFC subsector. Because of the special characteristics of offshore banks, their data should be separately identified within the subsector. Given that offshore banks are subject to less stringent regulations than onshore financial institutions, data collection from offshore units is sometimes difficult. If the central bank does not regulate the activities of offshore banks, it will need to negotiate the provision of data from the offshore units, or seek special authority to obtain reporting compliance.

3.92Offshore financial centers are jurisdictions in which the majority of the financial transactions are made by financial institutions located therein and are on behalf of clients who reside outside the offshore financial center. Some offshore financial centers are islands, whereas others are on the mainland. Offshore financial centers have adapted to increased competition resulting from liberalization of financial regulations in advanced economies, and account for a significant share of global financial flows. Offshore financial centers should compile data from all institutions classified as residing in their jurisdictions.

Banks in liquidation

3.93 Because of financial difficulties, some DCs may operate under the control of receivers or regulators, whereas others may have been closed. The DCs continue to exist, until a formal bankruptcy or reorganization has taken place. Until such corporations are liquidated or reorganized, their deposits may be effectively frozen. It is often unclear whether depositors and other creditors will eventually be able to recover all or part of their deposits or other funding and, if so, the length of time before the creditors will be reimbursed.

3.94 The DCs in liquidation or reorganization continue to have claims on various sectors of the economy, which eventually may be transferred to a restructuring agency or may be acquired by other DCs. Reorganization, sale, or merger of such DCs may result in all or part of the funds eventually becoming available to depositors and possibly other creditors.

3.95 To avoid distortion in the monetary statistics while the restructuring process is on-going, the MFSM and this Guide recommend that banks in liquidation continue to be included in the ODC sector as long as they possess financial assets and liabilities. Separate data on their accounts should be presented as memorandum items accompanying the ODC sectoral balance sheet.

Other financial corporations

3.96 Collection of OFC data for monetary and financial statistics can be difficult. Financial institutions in the OFC subsector often are supervised and regulated by official agencies at the state or national level rather than by the central bank. Therefore, close collaboration between monetary statistics compilers and the agencies supervising the various types of OFCs is required.

Other financial intermediaries

The subsector of other financial intermediaries covers a diverse group of units constituting all financial corporations other than depository corporations, insurance corporations, pension funds, and financial auxiliaries. (MFSM, ¶99)

3.97 Financial corporations in the other financial intermediaries subsector generally raise funds on financial markets, but generally not in the form of deposits, and use the funds to extend loans and acquire other financial assets. The intermediaries often specialize in lending to borrowers in particular sectors of the economy and for specialized financial arrangements. Some of the types of units classified as other financial intermediaries are described in the next paragraphs.

3.98Finance companies extend credit mainly to nonfinancial corporations and households, actively competing with commercial banks. Generally, they are less regulated than units in the ODC subsector and often are subject to fewer reporting requirements. Depending on the country, finance companies offer such services as consumer loans, credit cards, small business loans, mortgage loans, economic development loans, and purchases of bankers’ acceptances and trade receivables.

3.99Captive finance companies are corporate subsidiaries that act as financial agents for their parent corporations, raising funds for lending to their parent corporations or for purchase of parent corporations’ accounts receivables. Captive finance companies are sometimes operated by ODCs for engaging in specialized activities or for regulatory reasons. If they are not treated as units separate from their parent corporations, they are subsumed within the balance sheets of the parent corporations. They are classified as other financial intermediaries in the OFC subsector if they can be treated as separate institutional units.

3.100Financial leasing companies engage in financing for the purchase of tangible assets. The leasing company is the legal owner of the financed goods (airplanes, automobiles, mainframe computers, etc.), but ownership is in effect conveyed to the lessee, who has the benefits, costs, and risks associated with ownership of the assets.

3.101Investment banks assist corporations in raising funds in equity and debt markets and provide strategic advisory services for mergers, acquisitions, and other types of financial transactions. In addition to assisting with the raising of funds for their corporate clients, investment banks sometimes invest their own funds directly in the securities offerings of their clients. Other channels of funding are through individual investors (private equity), hedge funds dedicated to direct investments in corporations (venture capital), and borrowers who obtain collateralized loans.

3.102Mutual funds (also called investment pools, investment trusts, unit trusts, or institutions for collective investment) are specially organized financial arrangements that consolidate investor funds for the purpose of acquiring financial assets. The liquidity of mutual funds can vary considerably, from highly liquid investments in short-term financial instruments to long-term investments in equity shares, mortgage loans, and real estate.

3.103Underwriters and dealers specialize in securities market activities, operating through public exchanges, over-the-counter markets, and privately negotiated deals. They assist firms in issuing securities through the underwriting and market placement of new securities issues, and may trade in new or outstanding securities on their own account. Only underwriters and dealers that act as financial intermediaries are classified in this category. Securities brokers and other units that arrange trades between securities buyers and sellers but do not purchase and hold securities on their own account are classified as financial auxiliaries.

3.104Financial derivative intermediaries consist of units that engage primarily in issuing and/or taking positions in financial derivatives recognized as financial assets.

3.105Specialized financial intermediaries are a diverse group of highly specialized intermediaries such as: (1) electronic currency corporations, which are primarily involved in issuing electronic currency or similar electronic payments mechanisms; (2) export/import finance firms, which offer a broad range of financial and documentary services associated with international trade; (3) factoring companies, which acquire accounts receivable from commercial enterprises, extend credit by rediscounting the receivables, and provide guarantees that cover late or defaulted payments; (4) hedge funds, which invest in financial derivatives, take long and short positions in securities, and may sell over-the-counter derivative contracts; (5) mezzanine companies, which provide short-term financing for corporate mergers and acquisitions; (6) venture capital and development capital firms, which pool funds for equity investments in new companies or existing companies that are developing new technologies; and (7) pawnshops, which extend loans to individuals who use personal property as collateral.

3.106Special purpose entities (SPEs), also called special purpose vehicles, are created to hold securitized assets or other assets that have been removed from the balance sheets of corporations or government units. SPEs can be separate corporations, but they are often organized as trusts or are created solely to hold specific portfolios of financial assets and liabilities. Securitization of assets on a large scale has been an important financial innovation that has led to extensive use of the SPEs as a means of facilitating the creation and marketing of securities. When deciding to classify an SPE within the other financial intermediaries subsector rather than within the sub-sector to which the parent unit belongs, it is essential to establish that the SPE sells a new financial asset and bears risk, rather than simply acting as a trust that passively manages assets. If the SPE is the legal owner of a portfolio of assets, sells a new financial asset that represents an interest in the portfolio, and has a full set of accounts, the SPE is acting as a financial intermediary and is classified in the FC sector. When the SPEs belong to FCs, the SPEs’ accounts may be reported separately or may be incorporated into the balance sheets of their parent corporations, depending on the national practice for data reporting. If the SPE does not effectively transform or intermediate the portfolio and does not bear market or credit risks, it is considered to be a trust that passively holds assets. Accounts that SPEs hold at financial institutions should be classified in the same sector as their parent units, if the SPEs are not classified as separate corporations. SPEs established overseas are always treated as separate units and are classified as other financial intermediaries in the countries where they are located.

3.107Holding corporations are corporations that control groups of subsidiary corporations and whose principal activity is to own and direct the groups. A holding corporation is classified in the OFC sector if the main activities of the entire group of corporations are financial activities. When sufficient information about the relative sizes of the corporations in the group is unavailable, a holding corporation may be classified as a financial corporation if a simple majority of the subsidiary corporations are financial corporations. Financial holding corporations may be allocated to subsectors according to the type of financial activity mainly carried out by the group they control. Therefore, a holding corporation controlling a group of insurance corporations is classified in the subsector of insurance corporations and pension funds. However, if no single type of financial activity is clearly predominant within the group, the holding corporation should be classified in the other financial intermediaries subsector.

3.108Asset management companies (AMCs) are created to address the workout of nonperforming loans (NPLs) or other impaired financial assets through the acquisition, management, and disposal of the impaired assets. Most AMCs have been established by governments as public institutions, but AMCs have also been created as financial corporation subsidiaries to facilitate the management of their own NPL portfolios. AMCs can function as fast-disposal units for selling loans and/or other impaired financial assets, as medium-term corporate restructuring agencies, as warehouses for holding the NPLs for extended periods, or as hybrid units performing multiple functions. AMCs are funded directly by the government or through borrowing, mainly through the issuance of bonds with or without government guarantees. If not subsidiaries of ODCs, AMCs that are independent institutions are classified as OFCs, irrespective of the sources of their funding. If they are subsidiaries of ODCs, their balance sheets are consolidated with the balance sheets of their parent ODCs.

Insurance corporations and pension funds

This subsector includes resident insurance corporations and quasi-corporations and autonomous pension funds. (MFSM, ¶97)

3.109Insurance corporations provide financial benefits to policyholders and their survivors in the event of accidents, illness, death, disasters, or incurrence of various business or personal expenses. The subsector also includes reinsurance corporations, which provide insurance against losses sustained from insurance policies issued by other insurance corporations.

3.110Life insurance corporations invest premiums to build up portfolios of financial assets to be used to meet future claims. Non-life insurance companies provide financial benefits in the event of accidents, fire, property loss, health-related expenses, etc., spreading current risk or expenses among clients. Some individual insurance corporations sell both life and non-life insurance, in which case they are called composite insurance companies.

3.111 Some corporations create captive insurance subsidiaries to handle their insurance needs. Captives are units separate from their parents and are classified in the OFC subsector. Captives collect premiums from their parent corporation, then reinsure themselves or invest their assets to build up reserves against future claims of the parent corporation. Some captives also provide insurance for unaffiliated units.

3.112Reinsurance corporations insure the insurance policies written by other insurance corporations in exchange for insurance premiums. The reinsurance market is dominated by large corporations, but smaller reinsurers also exist. Insurance corporations purchase reinsurance to offset policy risk, thereby capping the net loss incurred if the insured event occurs.

3.113Pension funds are established to provide retirement benefits for specific groups of employees. Pension funds hold and invest assets of contributors to cover future pension payments. Governments sometimes organize pension plans for their employees, which are independent of the social security system. Pension plans can be established on a voluntary basis, or they can be compulsory with mandated contributions from the employee, employer, or both. Pension funds organized as trusts are not treated as separate institutional units.

3.114 Depending on how the benefits are determined, pension plans are classified as defined benefit plans or defined contribution plans. Under a defined benefit plan, the future retirement benefits are determined by an actuarial formula related to participants’ lengths of service and salaries, expected retirement ages, mortality rates, etc. Under a defined contribution plan, the benefits to be received by a participant are based on the participant’s contributions to the pension fund and the investment performance of the fund.

3.115 Pension plans may be funded or unfunded. Funded plans have separate pools of financial assets, or reserves, assigned for the payment of benefits. Unfunded plans are operated by employers who do not create specific pension-fund reserves for the payment of benefits.

3.116 Three types of funded pension plans are: (1) those operated by insurance corporations, (2) those operated as autonomous pension funds, and (3) those operated as non-autonomous pension funds. All three types of pension funds hold reserves dedicated to the payment of pensions and other retirement benefits to the employees or other beneficiaries.

3.117 The pension funds included in the OFC subsector are those that are independently constituted from the units that have created them and that have their own separate sets of pension-fund assets and liabilities, with specific obligations to their contributors.

3.118 Excluded from the OFC subsector are non-autonomous pension funds managed by the employer, state-sponsored pension systems funded through wage taxes (pay-as-you-go schemes), and arrangements organized by nongovernment employers and for which the reserves of the fund are simply included among the employer’s own resources or are invested in securities issued by that employer. All assets, liabilities, transactions, and other events of non-autonomous pensions funds are combined with the accounts of the employer who operates the scheme and are classified in the same institutional sector as the employer.

Financial auxiliaries

The financial auxiliary subsector includes financial corporations that engage in activities closely related to financial intermediation but do not act as intermediaries. (MFSM, ¶101)

3.119 Activities that are auxiliary to financial intermediation are performed, on a secondary basis, by traditional financial intermediaries or by financial auxiliaries that do not engage in raising funds or extending credit on their own account. Some of the most common types of financial auxiliaries are described in the next paragraphs.

3.120Public exchanges and securities markets provide facilities in which commodities and securities (bonds, equities, financial derivatives, etc.) are transacted. An exchange is often responsible for ensuring the qualifications of its members, guaranteeing the completion of transactions, clearing and netting transactions, arranging payments, resolving disputes, and guarding against fraud. The sector includes the exchange itself and a number of entities such as securities depository companies, accounting and clearing offices, other specialized providers of securities trading services, and nongovernmental organizations that regulate or supervise exchanges and securities markets. Compilers are advised to classify markets as organized exchanges if they (1) are legally determined to be exchanges by regulators or courts; (2) hold accounts or deposits for clients in their own name or act as counterparties in trades; (3) maintain insurance or capital reserves; (4) exercise control over the trading of exchange members; (5) operate a margining system or collect collateral; and (6) have a specific location for trading.

3.121Brokers and agents are individuals or firms that arrange, execute, or otherwise facilitate client transactions in financial assets. Included are brokers and agents who handle the purchase and sale of securities or other financial contracts for their clients, as well as providers of financial advisory services to brokers and their clients. Brokerage firms are distinguished from underwriters and dealers that are classified as other financial intermediaries. Only brokers and agents that clearly specialize in brokerage and related activities and do not take their own positions in financial assets should be included in this subsector.

3.122Foreign exchange companies, or bureaux de change, are units that buy and sell foreign exchange in retail or wholesale markets. In many countries, foreign exchange corporations are licensed and regulated, and high-quality data on their activities can be collected. In economies with foreign exchange controls, individuals or enterprises such as travel agencies engage in informal foreign exchange trade, complicating the measurement of overall activity. Most commercial banks have departments that trade in foreign exchange, and the activity is included into their balance sheets.

3.123Financial guarantee corporations insure customers against financial loss on specific securities or other contracts, or against losses from collapse of financial institutions. Guarantors must establish financial capability for fulfilling their obligations but, unlike insurance corporations, do not have definable pools of assets constituting insurance technical reserves. Their activities may be limited to specific types of financial transactions, and they are not regulated as insurance corporations. Very often, guarantees on financial instruments are provided by banks, securities brokers, and other financial intermediaries as secondary activities. Only specialized independent guarantee corporations should be classified within this subsector. It is not always easy to distinguish between financial guarantee corporations and insurance corporations. In borderline cases, the units should be classified as insurance corporations.

3.124Insurance and pension auxiliaries include agents, adjusters, and salvage administrators. Their unique nature and the large scale of their activities in some countries justify the separate identification of these units.

3.125Financial derivative corporations facilitate the issuance of financial derivative contracts, without actually issuing the financial derivatives or taking financial positions in them. Although these units may have financial assets, they are not classified as other financial intermediaries, because they do not intermediate by incurring liabilities in order to acquire financial assets. These financial derivative corporations are distinguished from financial derivative intermediaries that issue or take positions in financial derivatives, and which are classified as other financial intermediaries.

3.126Representative offices of foreign banks that do not accept deposits or extend credit are classified as resident financial auxiliaries, even though they promote and facilitate transactions of the nonresident parent company.

3.127Corporations primarily involved in the operation of electronic payment mechanisms are classified as financial auxiliaries if they can be separately identified as institutional units, are primarily engaged in this specialized activity, and do not incur liabilities against the electronic payment instruments. If they incur liabilities against the issuance of electronic currency, they are included in the other financial intermediaries subsector or in the other depository corporations subsector (if the electronic currency is included in the national definition of broad money).

3.128Supervisory agencies and regulatory bodies that regulate or supervise financial corporations are classified as financial auxiliaries if they are independent units, even if they are agencies affiliated with the government. The recommendation of the MFSM and this Guide differs from the recommendation of the 1993 SNA, which classifies them as part of the central bank subsector if they are separate institutional units. The MFSM follows the treatment in the European System of Accounts (ESA; Eurostat, 1996), which is based on recognition that these regulatory bodies are not financial intermediaries, and that the activities of some units (for example, securities commissioners or insurance regulators) have little relationship to central bank activities. When regulation of the activities of commercial banks and other financial corporations is exercised by the central bank through one of its departments, such regulatory activities can be subsumed within the central bank. Regulatory bodies may become involved in extending emergency credits, or acquiring assets and liabilities of financial institutions during bankruptcies or reorganizations. When holdings of financial assets and liabilities become substantial, the unit should be reclassified as an other financial intermediary.

3.129Bank restructuring agencies are set up as independent entities to review the rehabilitation plans of suspended financial corporations, assist depositors and creditors of suspended financial corporations, administer the liquidation of nonviable financial corporations, or oversee the liquidation or reorganization process.

3.130Solicitor nominee companies are bare trusts that receive funds from private sources for lending that is secured by real property. The nominee company holds the security in its own name, but the holding is on behalf of the lenders, who are the beneficial owners of the security. Given that the nominee company is a bare trust, the lenders are not provided with a guarantee that the borrowers will repay the loans.

3.131Trusts are arrangements that provide for legal control of financial assets and liabilities. Compilers rarely have access to detailed information on all but the largest trusts, and accurate sectorization of many trusts may be difficult. In the absence of information about the owners of the underlying assets, trusts are not recognized as separate institutional units and are consolidated with the units that control them. Data on trusts administered by depository corporations should be reported together with the accounts of the parent corporations. Trusts established for some types of financial intermediation (for example, securitization, collateralized security issuance, investment pooling) may be recognized as separate units if (1) they act like financial intermediaries, (2) no other unit can reasonably be considered as controlling the portfolio, and (3) serious discrepancies would occur in the financial accounts if these trusts were ignored. Similarly, trusts organized in foreign countries are treated as a separate units having residency in the countries in which they are legally domiciled.

Nonfinancial Corporations

The nonfinancial corporations sector encompasses [resident] corporations and quasi-corporations engaging primarily in the production of market goods and nonfinancial services. (MFSM, ¶106)

3.132 The nonfinancial corporations sector is composed of the following set of resident institutional units: (1) all resident nonfinancial corporations, irrespective of the residence of their shareholders; (2) all resident nonfinancial quasi-corporations, including the branches or agencies of foreign-owned non-financial enterprises that are engaged in significant amount of production in the economic territory on a long-term basis; and (3) all resident NPIs that are market producers of goods or nonfinancial services.

3.133 Some nonfinancial corporations have secondary financial activities—for example, producers or retailers of goods that provide consumer credit directly to their customers. Such corporations are classified as belonging entirely to the nonfinancial corporations sector, provided that their main activities are nonfinancial.

The nonfinancial corporations sector is divided, on the basis of the types of institutional units exercising control, into two mutually exclusive subsectors. Public nonfinancial corporations … [and] other nonfinancial corporations. (MFSM, ¶106)

Public nonfinancial corporations

3.134 Public nonfinancial corporations consist of resident nonfinancial corporations and quasi-corporations that are subject to control by government units. Control over a corporation is defined as the ability to determine general corporate policy by choosing appropriate directors, if necessary.

3.135 The government may secure control over a corporation either by owning more than half of the voting shares or otherwise controlling more than half of the shareholders’ voting power, or as a result of special legislation, decree, or regulation empowering the government to determine corporate policy or to appoint the directors. Control of more than half of the shareholders’ voting power can be exercised directly via ownership of the shares, or indirectly through another public corporation that has a controlling power over a subsidiary.

3.136 To be classified as a public nonfinancial corporation, rather than as a government agency, a corporation must produce goods or nonfinancial services for the market and charge economically significant prices, which are prices that influence the demand for the goods or services in question. The prices charged for the goods or services may be insufficient to generate a profit for the corporation or even to cover its production costs, but as long as they are high enough to influence the demand, the institutional unit is classified as a public corporation. For instance, public railway and urban transportation systems may generate losses, but the fares for their service are high enough to produce sizable revenue for the corporation and to influence the public’s decisions to use or not to use the system. However, some government services are provided for nominal fees that are so low that the fees do not ration the use of the facilities and do not produce enough revenue to contribute significantly to the financing of the operations.

3.137 For a unit that sells its output to be classified as a public nonfinancial corporation, it must sell most of its output to the public. For instance, a government publishing office that sells its publications at prices that produce enough revenue to cover all or most of its operating costs should be classified as a public nonfinancial corporation. However, a national statistical office will be considered part of the central government, even if its publications are sold to the general public, because this is not its core activity and produces only a modest amount of revenue, which is classified as special revenue.

3.138 A unit that is an internal service organization such as a transportation pool, a supply depot, or a munitions factory that sells its output to other government units is treated as an ancillary, and its activities are consolidated with the other activities of the government unit that controls it. A unit established by the government to borrow on the market and to lend only to general government units (even if on commercial terms) should be classified as part of the general government, even though it has all characteristics of an FC.8

3.139 For a public corporation (or quasi-corporation) to exist, the government must allow considerable discretion with respect to the management of the production processes and the use of funds. The corporation must be able to maintain its own working capital and be able to finance some or all of its capital formation, either from its own resources or by borrowing. The ability to distinguish flows of income and capital between a corporation and the government unit that owns it implies that the operating and financing activities of the corporation are not fully integrated with the parent unit’s corresponding activities, despite the fact that the corporation is not a separate legal entity.

3.140 It is sometimes difficult for monetary statistics compilers to distinguish between public and private nonfinancial corporations, or between units that are part of general government and units that are public nonfinancial corporations. The difficulties have intensified in the wake of public corporation privatization during the 1980s and 1990s. Without a specific frame of reference, compilers at central banks and ODCs have relied on their own knowledge—not always up to date—when classifying a unit in one or another sector. Mistakes are common, and partially privatized corporations (still under government control) have been classified as private corporations, fully privatized corporations have continued to be reported as public nonfinancial corporations, and government agencies have been misclassified as public nonfinancial corporations. The starting point in establishing the classification should be the development of an official and comprehensive list of institutional units belonging to the public nonfinancial corporations sector. This list should be distributed to the central bank, ODCs, and OFCs to ensure a uniform sectorization of these units. The list should be periodically reviewed and updated. Some countries have introduced an identification code (normally linked to the tax system) for each economic unit, which would lead to classification of each unit in its appropriate sector.

Other nonfinancial corporations

3.141 Within the category of other nonfinancial corporations, national private nonfinancial corporations are distinguished from foreign-controlled nonfinancial corporations.

3.142National private nonfinancial corporations include all resident nonfinancial corporations that are not controlled by government or by nonresident institutional units. Effective control is difficult to determine for a corporation that has minority ownership shares, but a practical rule is to assign control to the group that owns more than 50 percent of the shares of the corporation.

3.143 The key to classifying a unit as a private nonfinancial corporation is to establish that the unit produces for the market. Private nonfinancial corporations may generate losses during certain periods, but those for which losses are systematic will eventually go bankrupt and disappear.

3.144 Some private nonfinancial corporations may produce goods or services for the government (that is, public goods or public services) or goods or services for which production is highly subsidized by the government. Even if the goods or services are not being produced for the market, profit-oriented corporations that produce the goods or services should be classified as private nonfinancial corporations.

3.145 This subsector also includes NPIs that produce goods or nonfinancial services for the market, such as units engaged in providing education or health services on a fee basis, or trade associations serving enterprises.

3.146Foreign-controlled nonfinancial corporations comprise all resident nonfinancial corporations that are controlled by nonresidents. The classification is based on majority control (more than 50 percent of the shares) and is therefore not identical to the balance of payments concept of direct investment enterprises, which includes associated firms (those with 10–50 percent ownership by nonresidents). This subsector includes: (1) subsidiaries (but not associates) of nonresident corporations; (2) corporations controlled by nonresident units that are not corporations, such as a corporation controlled by a foreign government, or by a group of nonresident units acting in concert; and (3) branches or other unincorporated entities that engage in significant amounts of production in the economic territory on a long-term basis and therefore are treated as resident quasi-corporations.

Special cases

Household unincorporated market enterprises

3.147 Household unincorporated market enterprises are created to produce goods or services for sale or barter on the market. They can engage in virtually any kind of productive activity, and can range from individuals working as street vendors with little capital and no premises of their own, to manufacturing, construction, or service enterprises with several employees. These enterprises also include unincorporated partnerships in which the partners belong to different households.

3.148 If these unincorporated enterprises have their own sets of accounts, independent of the households, and their owners do not bear unlimited liability for the debts of the business, they are treated as quasi-corporations and are classified in the nonfinancial corporations sector. Otherwise, they are classified as part of the household sector.

Special purpose entities

3.149 SPEs are classified within the other financial intermediaries subsector when they actively manage their portfolios of assets, place themselves at financial risk, and have full sets of accounts. Very often, however, SPEs are created simply for accounting purposes, acquiring some of the balance-sheet items of the parent corporation. These SPEs are created through legal arrangements that heavily restrict the decision-making capacity of their governing bodies (autopilot arrangements), and all the risks and profits of their operations reside with the parent corporations.

3.150 The international financial reporting standards specify that the consolidated financial statements of the parent corporation should incorporate the accounts of all SPEs in which the corporation has a controlling financial interest. This approach takes into account the economic substance of the relationship between the parent corporation and the SPE, rather than merely the legal form, thereby treating the SPE as an ancillary of the parent corporation, rather than as an independent unit. Consistent with this approach, this Guide recommends that such SPEs’ accounts at FCs be reported as belonging to the economic sector of their parent corporations.

3.151 When SPEs are established outside the economic territory in which the parent corporation is located, they should be considered resident of the host economy, even if they have little or no physical presence. In these cases, they should be treated as separate institutional units, and their accounts in the financial sector of the host economy are reported as OFC accounts in the host economy.

General Government

General government units exercise legislative, judicial, or executive authority over other institutional units within a specified area. (MFSM, ¶108)

3.152 Government units are unique legal entities established by political processes. Typically, governments provide, for collective consumption, free goods and services such as public administration, defense, and law enforcement. These public goods are not allocated on the basis of the exclusion principle. No residents are excluded from consumption of the goods, and each resident can benefit without diminishing other residents’ access to the goods. Because of these characteristics, provision of the goods and services must be organized collectively and financed through taxation or other government revenue. Governments may also provide other goods or services, free or at prices that are not economically significant, even though the recipients could be charged for such goods and services. Finally, governments may provide transfers to institutional units (usually households) to redistribute income or wealth. Governments have authority to raise funds by collecting taxes or compulsory transfers from institutional units, and are also able to borrow on their own account.

3.153 A government unit is not limited to a specific geographic location, given that ministries and government departments may be dispersed throughout a country, and branch offices and agencies may be maintained in various locations. Despite their separate locations, these government offices are part of a single institutional unit of government.

3.154 There may be government entities with separate legal identity and substantial autonomy, including control over the volume and composition of their expenditures and funding through direct sources of revenue such as earmarked taxes. These entities are treated as separate government units if they maintain full sets of accounts, own assets in their own right, engage in nonmarket activities for which they are held accountable by law, and are able to incur liabilities and enter into contracts.

3.155 The general government sector consists of all government units and all nonmarket NPIs controlled by and financed mainly by the government. Depending on the administrative and legal arrangements, more than one level of government usually exists within a country, but not all countries have all levels of government. The 1993 SNA and the GFSM 2001 provide two principal methods for delineating the subsectors of general government. The first method divides general government into: (1) central government, (2) state governments, (3) local governments, and (4) social security funds. The second method subsumes the social security funds within the general government subsectors—central, state, or local government—in which the social security funds operate. The choice between the methods depends on the magnitude and organization of the social security funds, as well as on the extent to which their management is independent of the government units with which they are associated.

Central government

3.156 The political authority of central government extends over the entire territory of the country. The central government has the authority to impose taxes on all resident and nonresident units engaged in economic activities within the country. The central government is responsible for providing collective services for the benefit of the community as a whole, such as national defense, relations with other countries, public order and safety, and the efficient operation of the social and economic system of the country. In addition, it may incur expenses in providing services that primarily benefit individual households, such as education or health, and it may make transfers to institutional units, including other levels of government.

3.157 The central government is a large and complex subsector in most countries. It is generally composed of a central group of departments or ministries, plus autonomous units under the authority of the central government. The departments (or ministries) are sometimes deliberately dispersed throughout the country, but they nevertheless remain part of the central government. Similarly, if the central government maintains branch offices or agencies in different parts of the country to meet local needs, including military bases or installations that serve national defense purposes, these must also be counted as part of the central government. For instance, the Ministry of Health may maintain a network of hospitals in different parts of the country. The accounts of the hospitals are classified as part of central government, rather than being treated as part of local government.

3.158 In some countries, the central government may include units that engage in financial activities that are undertaken by central banks in other countries. Units of the central government may be responsible for the issuance of currency, holding of international reserves and operation of exchange stabilization funds, and/or a financial relationship with the IMF. When financially integrated into the central government and under the direct control and supervision of the central government, these monetary authorities functions are recorded as part of the government sector, rather than in the financial sector. Analytical importance sometimes is attached to compiling a single set of accounts that cover all monetary authorities functions performed by the central bank and the central government. The presentation that covers the central bank’s balance sheet and the monetary authorities activities of the central government is designated as the Monetary authorities account.

3.159 Monetary and financial statistics compilers need to be provided with a comprehensive list of agencies and other entities that belong to the central government (as well as lists of entities within state and local government). Responsibility for providing this list should reside with a single government agency such as the ministry of finance or the general accounting office. The list should be periodically reviewed and updated.

Government branches

3.160 The largest set of central government bodies comprises those with executive, legislative, and judicial powers. The office of the presidency, all national ministries, secretaries, armed forces, parliament, and all offices of the national judicial system are included. If some of these institutions have branches dispersed throughout the country, their accounts should be classified as part of the corresponding institutional unit within the central government.

3.161 Entities such as health or education ministries maintain establishments (hospitals, schools, universities, etc.) for the provision of general public services that are free of charge or require payment of fees that are not economically significant. The accounts of these entities should be reported together with the parent ministries’ accounts within central government.

3.162 If the units such as hospitals and schools charge economically significant prices for their services and receive revenue that contributes substantially toward the financing of their operations, are managed autonomously, and own assets and incur liabilities for their own account, they may be considered to be market NPIs, and their accounts are included in the public nonfinancial corporations subsector.

Nonmarket NPIs

3.163 Nonmarket NPIs controlled and mainly financed by the central government, although legally nongovernment units, should be classified as part of the central government sector. Governments may choose to use NPIs rather than government agencies to carry out some government policies. Government NPIs take the form of research and development institutes, standard-setting agencies, environmental protection entities, etc.

3.164 Government control over a nonmarket NPI is determined by the ability to influence the NPI’s general policies and programs, appoint its directors and/or managers, and determine the amount of central government financing. An NPI mainly financed by the central government through the national budget should be considered a central government agency, even if it charges fees for its services or has an extraordinary source of income through the sale of its products. For instance, it is common for standard-setting agencies to charge for the issuance of certificates of quality, or for research and development institutes to copyright and sell their discoveries. However, these proceeds are not their main sources of income, and they continue to rely on government transfers to finance their budgets.

Autonomous agencies

3.165 Within the central government sector are numerous units created for special purposes and which enjoy substantial administrative autonomy in terms of policy setting and budget management. Nevertheless, these should be classified as part of the central government, because they are mainly funded through the national budget.

3.166Special agencies may have separate legal identity and discretion over the volume and composition of their expenditures, and may have a direct source of revenue in the form of earmarked taxes. Such agencies are often established to carry out specific functions such as road construction or the nonmarket production of health or education services.

3.167Agencies that manage internationally financed development projects such as those financed by multilateral organizations (for example, the World Bank) or donor agencies (for example, USAID), normally have the power to hire staff, acquire goods, and contract work for project implementation. These managing agencies open special accounts, either at central banks or at commercial banks, for the project funds. These agencies enjoy autonomy, but their expenditures are strictly project related. They are treated as part of the central government,9 because the central government (normally the ministry of finance) negotiates the loans or grants with the international organizations and assumes the financial liabilities for the projects.10 For analytical purposes, however, separate identification of the government accounts related to projects financed by international agencies may be necessary.

3.168National universities are a special case of units providing education services. Even if they are incorporated into the ministry of education and receive most of their funding through the national budget, they normally enjoy a much greater degree of policy and financial autonomy than primary or secondary schools. If the universities are controlled by a central government unit11 (for example, the ministry of education) and their main source of funding is the central government, their accounts should be part of the central government accounts, even if the universities can freely spend the funds after transfer to their accounts.

3.169Political parties are normally part of the NPISH sector. However, in single-party states, the relationship between the central government and the government party is so close that the party should be classified within the central government subsector.

Special purpose entities

3.170 An SPE12 is created through the transfer of assets, liabilities, or rights to carry out a well-specified activity or series of transactions directly related to the specific purpose for which it was formed. SPEs often are created to securitize assets, pooling financial assets owned by the parent corporation and issuing securities backed by those assets.

3.171 Other SPE arrangements used by governments (in partnership with the private sector) to finance the construction and operation of fixed assets take the form of public-private partnerships and build-operate-transfer (BOT) schemes.13 Under public-private partnerships, contractors pay the construction costs of public facilities (roads, schools, hospitals, prisons, etc.) and rent the finished projects to the public sector. In a BOT scheme, a private entity receives a franchise from the public sector to finance, design, construct, and operate a facility for a specified period, after which ownership is transferred to the public sector.

3.172 For an SPE created to securitize financial assets owned by the government, consideration of the sectorization of the SPE should go farther than simply whether it is a legally separate institutional unit with a full set of accounts. If an SPE owned by the government is the legal owner of a portfolio of assets, sells a new financial instrument that represents an interest in the portfolio, and bears credit and commercial risks, the SPE should be included in the other financial intermediaries subsector. If the SPE has a very limited degree of autonomy, the government guarantees its loans (eliminating market and/or credit risk), and the SPE does not effectively transform or intermediate the portfolio, the SPE is treated as an ancillary to the government unit controlling it, and it is classified as part of the central government.

3.173 For a partnership between the government and the private sector under public-private partnerships or BOT schemes, several issues need to be addressed in deciding on the sectorization of its accounts. Because of complex sharing of risks and returns of the assets, as stipulated in the contracts, the economic owner of the fixed assets often is unclear. Provision for transfer of legal ownership at less than market price at the end of the contract implies that some mechanism within the contract enables the private enterprise to earn a market rate of return. Structured financial arrangements within public-private partnerships sometimes provide for the private sector to take responsibility for the financing and management, but the government often bears substantial risks. An issue may arise as to whether the public-private partnership (or BOT scheme) is a private nonfinancial corporation, or simply a government agency disguised as an independent unit.

3.174 Relevant for compilers of monetary and financial statistics is the proper sectorization of the deposit accounts held by SPEs, public-private partnerships, or BOT schemes in the financial sector, and of the loans extended to these entities. For the sectorization, the nature of the economic relationship between the government and the private sector should be carefully analyzed, going beyond the legal arrangements.

State, provincial, or regional governments

3.175 A state, province, or region is the largest geographical area into which a country may be divided for political or administrative purposes. The legislative, judicial, and executive authority of a state government extends over the entire area of an individual state, which usually includes numerous localities. The autonomy, powers, and responsibilities of states vary widely among countries, depending on their political and historical circumstances. In some countries, individual states do not exist.

3.176 A state government usually has the fiscal authority to levy taxes on institutional units that are resident or engage in economic activities within the state boundaries. To be recognized as a government unit, the entity must be able to own assets, to raise funds, to incur liabilities on its own account, and to spend or allocate at least some of the taxes or other income that it receives. The entity may also receive central government transfers that are for specified purposes. A state government should also be able to appoint its own officers independent of external administrative control. If a regional unit is entirely dependent on funds from the central government, and if the central government dictates the ways in which those funds are to be spent at the regional level, it should be treated as an agency of the central government rather than as a separate institutional unit.

3.177 The state government subsector consists of state governments that are separate institutional units plus those NPIs that are controlled and mainly financed by state governments. The principal departments and ministries of a state government will constitute a single institutional unit in a manner similar to the core unit of the central government. In addition, there may be agencies that operate under the authority of a state government and have separate legal identity and enough autonomy to form additional institutional units. The same considerations that apply to the central government regarding nonmarket NPIs, autonomous agencies, and SPEs are applicable to determination of whether these units are part of the state government subsector or some other sector. State governments may own or control corporations or have other units that engage in market production and which are classified as quasi-corporations.

3.178 The authority over some institutional units may be shared by two or more states. Such units are included in the state government subsector.

Local governments

3.179 The legislative, judicial, and executive authority of local government units is restricted to the smallest geographic areas distinguished for administrative and political purposes. The scope of their authority is generally less than that of the central or state governments, and such governments may or may not be entitled to levy taxes on institutional units or economic activities in their areas. Typical sources of revenue for local governments are taxes on real estate and automobiles, and fees for collective services (for example, trash collection). Local governments are often dependent on grants and transfers from higher levels of government. In some countries, local governments are able to raise funds by issuing bonds. Apart from being entitled to own assets, raise funds, and incur liabilities on their own account, local governments must also have some discretion over their expenditures and should be able to appoint their own officers independent of external administrative controls.

3.180 Local governments provide a wide range of services to local residents. Typical functions include: (1) educational establishments for which users’ fees are small in relation to the cost of providing the service; (2) hospitals and social welfare establishments, such as kindergartens, nurseries, and welfare homes; (3) public sanitation and related entities, such as water purification systems and plants, refuse collection and disposal agencies, cemeteries, and crematoria; and (4) cultural, leisure, and sports facilities, such as theaters, concert halls, museums, art galleries, libraries, parks, and open spaces. Local governments may provide these services directly, or may subcontract with a private corporation.

3.181 The principles for classifying units at the central and state government levels also apply to the local government subsector. Units such as municipal theaters, museums, and swimming pools should be treated as quasi-corporations if the services are supplied on a market basis. Units supplying services such as education or health on a nonmarket basis remain an integral part of the local government unit to which they belong.

3.182 Statistics for local governments may cover a wide variety of governmental units, such as counties, municipalities, cities, towns, townships, boroughs, school districts, and water sanitation districts. Local government units with different functional responsibilities often have authority in the same geographic area. Two or more contiguous local governments may jointly organize a government unit that is accountable to these local governments. Such units are included in the local government subsector.

3.183 Government units serving both a state and one or more local governments are included at the level of government that accounts for the largest share of their operations and financing. In some countries, other levels of government exist between the central government and the lower levels of government. These intermediate levels of government are grouped together with the level of government, either state or local, with which they are most closely associated.

Social security funds

3.184Social protection schemes are systematic government interventions intended to relieve households and individuals of the burden of a defined set of social risks. Typical social risks covered by these schemes are: (1) old age, (2) invalidity, (3) death, (4) sickness and maternity, (5) work injury, and (6) unemployment. The government provides the relief in the form of social benefits, which are transfer payments (in cash or in kind) provided in a collective arrangement. Social protection schemes cover the community as a whole, or large sections of the community, and generally involve compulsory contributions by employees and/or employers. The terms under which benefits are paid to recipients are determined by the government.

3.185 A social security fund is a particular kind of government unit that is devoted to the operation of one or more social security schemes. Social security funds can be found at all government levels (central, regional, local). To be treated as independent institutional units, they must be organized separately from the other activities of the government, holding their assets and liabilities separately and engaging in financial transactions on their own account.

3.186 Depending on the country, social security funds can be very large and play an important role in government policies and the mobilization of financial resources of the entire community. The amounts raised through social security contributions and paid out benefits may be varied to achieve policy objectives that have no direct connection with the concept of a social protection scheme. In some countries, social security funds may become so closely integrated with the other finances of the government as to bring into question whether they should be treated as a separate subsector of the general government.

3.187 To determine the sectoral classification of a social security fund—as a subsector of general government or as part of a particular level of government—it is crucial to determine the form in which the fund is organized and administered. Because the government can vary social security benefits as part of its overall economic policy, no liabilities are associated with social security schemes, and social security funds are part of the general government sector. If they are separately constituted, the social security funds are treated as separate institutional units. If their management is closely integrated with the government’s economic policy, it is more difficult to justify treating them as a separate subsector.

3.188 Social security funds are distinguished from autonomous pension schemes that are funded by employer/employee contributions and which have benefits that are linked to the contributions. These schemes, operated privately or by the government, are included in the OFC sector.


A household is defined as a small group of persons who share the same living accommodation, pool some or all of their income and wealth, and consume certain types of goods and services (mainly housing and food) collectively. Unattached individuals are also considered households. (MFSM, ¶111)

3.189 Households often coincide with families, but members of the same household do not necessarily have to belong to the same family as long as some sharing of resources and consumption exists. Households may be of various sizes and different forms, depending on tradition, religion, climate, geography, and other factors.

3.190 Servants or other paid domestic employees who live on the same premises as their employer do not form part of their employer’s household (even though they may be provided with accommodation and meals as remuneration in kind), because they have no claims upon the collective resources of their employer’s household.

3.191 Persons living in institutions and who are expected to reside in the institutions for long, or indefinite, periods of time are treated as belonging to a single household if they have little or no autonomy of decision making or action in economic matters. Some examples of persons belonging to institutional households are: (1) members of religious orders living in monasteries, convents, or similar institutions; (2) long-term patients in hospitals, including mental hospitals; (3) prisoners; and (4) persons in nursing or retirement homes.

Households as producers

3.192 Households may engage in various kinds of economic activity, not merely consumption. Members of households play a major role in production through the operation of their own unincorporated enterprises or through the supplying of labor as employees of unincorporated or corporate enterprises. A household-owned enterprise that is not a corporation or quasi-corporation constitutes an integral part of the household itself.

3.193 Household sector production takes place in enterprises that are directly owned and controlled by members of households, either individually or in partnership with others. Producer units within the household sector are all unincorporated, meaning that the producer unit is not a separate legal entity from the household itself. The assets of an unincorporated enterprise belong to the owner rather than to the enterprise. The owner is personally liable, without limit, for all debts or other obligations incurred in the course of production.

3.194 Households’ unincorporated enterprises may produce for the market or for their own final use. Some household enterprises are created solely for the purpose of producing goods or services for sale or barter on the market. Other household enterprises operate primarily for production of goods or services for own final use, such as the activities of subsistence farmers, households engaged in the construction of their own dwellings, and domestic services produced directly within the household.

3.195 Unincorporated enterprises owned by households and engaged in market production are classified in the household sector. If these enterprises qualify as quasi-corporations, they are included in the nonfinancial corporations sector.

Nonprofit Institutions Serving Households

The NPISH sector comprises a subset of nonprofit institutions. (MFSM, ¶114)

3.196 The majority of NPIs are likely to be nonmarket producers that provide goods or services to their members, other households, or the community as a whole, either free or at prices (or fees) that are not economically significant. Nonmarket NPIs that are not financed and are not controlled government units are called NPIs serving households (NPISH), which constitute a separate sector.

3.197 NPISH are mainly financed from contributions, subscriptions from members, and earnings on their holdings of financial and nonfinancial assets. The NPISH sector includes two major categories:

  • Trade unions, professional or learned societies, consumers’ associations, political parties (except in single party states), churches or religious societies (including those financed by the government), and social, cultural, recreational, and sports clubs; and
  • Charities and relief (aid) organizations financed by voluntary transfers (in cash or in kind) from other institutional units.

3.198 Compilers may need to consider borderline cases or misleading designations in deciding whether a unit should be classified as NPISH or a nonfinancial corporation. For example, recreational and sports clubs are classified as NPISH if they are not for profit and are organized as civil associations. However, sports clubs that are organized as private enterprises are classified in the nonfinancial corporations sector. Professional associations can be borderline cases for which it is necessary to determine if they serve households (and therefore are NPISH) or serve corporations.

3.199 For the monetary statistics, the MFSM and this Guide combine households and NPISH in the category of Other resident sectors.


Except for ancillary units established in a foreign territory, as described in the Residency section of this chapter.


On economically significant prices, see the Public nonfinancial corporations section in this chapter.


These include NPIs serving business if they are controlled and mainly financed by government.


The error often is due to historical circumstances, when only nonresidents could open accounts in foreign currency. As the financial systems liberalized, residents were also given opportunities to open such accounts, but the financial institutions continued to report all foreign-currency-denominated accounts as nonresident.


In the compilation and presentation of the monetary statistics, the household and NPISH sectors are combined under the category of Other resident sectors.


In some cases (for example, Brunei Darussalam), the backing is somewhat less than 100 percent.


They are included if it is expected that most of the checks will be used for domestic market transactions; they are excluded if most are expected to be used during foreign travel.


However, if the unit lends to public corporations, it would be classified as an FC.


In some cases, the loans or grants are extended to a lower level of government, or to a financial institution that acts as the central government fiscal agent. In these cases, the accounts are classified within the corresponding sector (state or local government, or financial corporations).


Moreover, the central government retains the authority to cancel the project at any time.


If controlled at the state level, the university is part of the state government subsector.


Other names given to these units are vehicle companies, special purpose vehicles, financial vehicle corporations, special purpose units, etc.


Some countries use the term build-own-operate-transfer (BOOT). There is a wide spectrum of schemes similar to the BOT, such as build-transfer, build-own-operate, build-lease-transfer, build-transfer-operate, contract-add-operate, design-build-finance-operate, develop-operate-transfer, rehabilitate-operate-transfer, and rehabilitate-own-operate.

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