Eurostat accounting guidelines for financial intervention

[yoganmahew]

Earlier today I heard Mr. White of Davy’s talking about the fact that the government may not have to include the cost of NAMA in the National Debt based on a Eurostat decison of 15 July 2009. He, I guess, got the information from the NTMA press briefing:
ntma.ie/Publications/2009/An … 230709.pdf

based on the Eurostat decision of 15 July on the statistical recording of public
interventions to support financial institutions and financial markets during the
financial crisis, it is possible that NAMA may be classified as being outside the
government sector and its liabilities may be “off balance sheet”.

So I thought I’d stop listening to the jockey and have a look in the horses mouth…

Eurostat press release:
epp.eurostat.ec.europa.eu/cache/ … -BP-EN.PDF

Which links to:
Eurostat guidance note
epp.eurostat.ec.europa.eu/portal … 0draft.pdf
Purchase of Assets and Defeasance p.7 (possibly NAMA?)

With regard to the purchase of loans, ESA95 specifies that loans are to be recorded at nominal
value in national accounts balance sheets. The MGDD (section II.5.2) makes the assumption
that loans are sold by financial institutions at their redemption value, however it specifies that
“if there is reliable information that these loans are irrecoverable (fully or for nearly their total
amount)” then they should be written off by the financial institution before they are sold to the
defeasance body, and therefore the operation should be partitioned into financial and nonfinancial
transactions (the latter reflecting the difference between the price paid and the value
of the loans after write-off) when they are purchased by the defeasance body.

Valuation is a key factor in the recording of purchases of assets. ESA95 (para 5.134) says that
“financial transactions are to be recorded at transaction values” and (in para 5.136) that where
the “financial transaction is undertaken other than for purely commercial considerations, the
transaction value is identified with the current market value of the financial assets and/or
liabilities involved”. This means that if government has paid more than the market price for
the assets, by a non-negligible amount, then a government expenditure (capital transfer) is to
be recorded for the difference between the two values at the time of purchase. Nevertheless,
this might be difficult or impossible to determine where no reliable market price exists due to
financial turmoil, and therefore statisticians would need to exercise caution in the recording of
operations in these conditions.

Exchange of Assets p.8 (e.g. BoE SLS (Special Liquidity Scheme))

The government securities exchanged in temporary liquidity schemes, where the securities
will return to government at a pre-determined future date in a short period of time (and the
risk of loss is expected to be small), are recorded as a securities lending transaction (i.e. they
remain under the economic ownership of government and do not form part of government
consolidated gross debt). This holds for both schemes directly between the government and
financial institutions, and for schemes conducted via the National Central Banks.
Where the liquidity scheme is of indeterminate or not short duration and/or where the risk of
loss is not expected to be small, the government securities concerned will either be considered
as not remaining under the economic ownership of government (schemes operated via central
banks) or recorded as back-to-back repurchase agreements (schemes operated directly by
government). In both cases, government consolidated gross debt would be higher by the value
of the securities concerned.

Classification of Certain New Bodies p.9 (possibly NAMA?)

Government-owned special purpose entities, which have as their purpose to conduct specific
government policies (for example with regard to defeasance or recapitalisation) with no
autonomy of decision, are to be classified in the general government sector.

Majority privately-owned special purpose entities which are established with a short
temporary duration (their existence would be for a short period of time strictly linked to the
actual duration of the financial crisis) and have a sole purpose to address the financial crisis,
even if they receive a government guarantee, are to be recorded outside the general
government sector if the expected losses that they will bear are small in comparison with the
total size of their liabilities. This latter condition may be determined, for example, by the
extent and form of collateral arrangements which are in place.

So it is not, IMO, clear-cut at all, hence Mr. Somers reticence use of “may” and “possibly” as opposed to Mr. White’s use of “may well” (IIRC). Indeed, it looks to me that NAMA as currently envisaged by Mr. Bacon’s recommendations would fall foul of the Eurostat directive either by not having autonomy or because it is planned to overpay for the loans. The recent valuation of the Sentinel building in Sandyford at €0.5-1 mn with an outstanding loan of €22 mn must give the NAMA planners pause for thought.

In short, I don’t see that NAMA as it has been expressed to us can avoid being part of the National Debt. Not that it makes much difference in the grand scheme of things, but for neatness, you know!

[bodyofevidence]

it really really doesnt matter. As was noted on Newstalk yesterday lunchtime , regardless of how one statistically manipulates it, we still owe the NAMA bonds repayment. This is akin to the SIV’s of Enron etc ; and look how well they worked