Banking activity measured by the banks and by the national accounts: meaningful differences

Private-sector accounting and national accounting show very different pictures of trends in banking activity. As tracked by credit institutions, net banking income grew at a robust pace in 1995-2006, weakened significantly in 2007, then fell sharply in 2008; the national accounts show a far more moderate rise in banking-sector value added until 2006, but a further increase in 2007-2008. This difference in the measurement of banking activity is due to the fact that the national accounts restrict value added to the production of bank services in the narrow sense, whereas private-sector accounting also includes financial income and capital gains/losses on financial assets. The latter items are precisely the ones responsible for both the vigorous growth in banking income until 2006 and its steep fall in 2008.