“Measured” risk-adjusted FISIM is still an improvement on current FISIM. But the value of bank output is still overstated relative to “true” risk-adjusted FISIM. This would be equivalent to second-car hand dealers consistently selling lemons. But a dodgy car-seller would be quickly found out. Mechanical risk is observable. Dealers that persistently mis-price cars would be driven from the market. Buyers might instead then choose to meet online. A banking system that does not accurately assess and price risk is not adding much value to the economy. Buyers and sellers of risk could meet instead in capital markets – as they have, to some extent, following the crisis. But unlike the condition of a car, risk is unobservable. So mis-pricing of risk, and mis-measurement of the services banks provide to the real economy, may persist. This echoes events in the run-up to crisis when market prices systematically under-priced risk for a number of years. Using the market price of risk would have led statisticians systematically to overstate the potential contribution of the financial sector over this period. Attempting to adjust the measurement of bank output for risk by changing the reference rate in FISIM is an improvement on current practices. But it would still fall short of assessing whether the financial sector is pricing risk correctly and hence assessing the true value of the services banks provides to the wider economy. Unless the price of risk can be evaluated, it seems unlikely the contribution of the financial sector to the economy can be measured with accuracy. 3.
The infrastructure must be constructed so that it does not exacerbate any problems that may arise. It needs to be capable of handling external shocks without any danger of collapsing. However, the severe strains that arise from time to time in the payment system tend to be generated not so much by hang-ups in technical and administrative systems as by problems for one or several of the participating banks. Problems for one bank quickly spread to the rest of the payment system and may generate a systemic risk. This risk arises if problems with credit or liquidity prevent bank A from completing its payments to bank B, which thereby has difficulties in paying bank C. Banks B and C are then liable to fail solely because bank A cannot fulfil its commitments. The risk obviously varies with the size of the payments in question; the larger these are, the greater is the potential systemic risk. The occurrence of systemic crisis threatens the whole or parts of the payment system, and if this ceases to function the entire financial system as well as the real economy will be affected. The crisis in Sweden in the early 1990s was associated with large systemic risks. Last autumn the U.S. Federal Reserve perceived considerable systemic risks in the domestic financial market. In neither of these cases, however, was there a full-blown systemic crisis. In the event of a systemic crisis, the payment system needs a large supply of credit.