Improving the Treatment of Holding Gains and Default Losses in National Accounts

Holding gains and losses and default losses play key roles in the operations and reported income of financial intermediaries and other businesses, but are excluded from the national accounts definition of income. Measures that combine income and holding gains/losses and that adjust the income of lenders for predictable default losses are needed to understand the operating results of businesses and the resources available to households, and should be presented in supplementary accounts. Changing the national accounts treatment of retained earnings of corporations to include retained earnings in the income of shareholders would provide improved insight into the roles of holding gains and saving in changes in the wealth of households and governments. To measure output properly in the core national accounts, apparent holding gains that are really payments for services must be distinguished from true holding gains, and expected default losses must be excluded from FISIM on loans.