Theory and measurement in SFC models: the role of the financial sector

The relevance of the article is determined by the need to balance certain segments of the financial and real sectors of the economy, build their infrastructure, increase innovation through the implementation of the achievements of the financial industry. The main scientific result of the article is to define the financial sector and the financial industry, to establish causal links between them and development strategies. The financial sector is a subsystem of the financial market and is represented by its national regulator, financial and infrastructural participants, namely: corporations that accept deposits; money market funds and investment funds, pension funds, insurance corporations, captive and auxiliary financial corporations, other financial intermediaries. In contrast to the existing definitions, the proposed one is based on the classification of institutional sectors of the Ukrainian economy. The connection between the financial and real sectors is formalized as mutually complementary parts, which together make up the national economy, ensure the circulation of material and financial resources, the creation of added value. At the same time, they perform specific functions: the financial sector - distribution and transaction, the real - generating and transforming. The financial industry is a complex category that combines a set of financial institutions with their quality and technical and technological characteristics (intellectual capital, innovation, financial technology) in a creative economy. The financial sector and the financial industry reflect the dualistic nature of the functioning of financial institutions as financial service providers, on the one hand, and business process owners, on the other. Therefore, their strategies have a common premise and goal - financial stability, macroeconomic development should ensure the sustainability of public finances, the formation of long-term financial resources, lending to the economy. The common strategic goals are: financial inclusion, supported by digital and financial literacy, development of financial markets and non-cash economy, innovative development and economic system based on financial technologies.

The article investigates the importance of macroeconomic statistics systems as a methodological and information base for the studying of financial sector. The System of National Accounts (SNA) is a coordinating framework for all systems of macroeconomic statistics. Monetary and Financial Statistics can be seen as an extention of the SNA regarding financial sector activities. The System of National Accounts and Monetary and Financial Statistics are consistent and harmonized. That is why the same conceptual and methodological approaches to the analysis of financial sector development can be used. The information base of national accounting allows to investigate the role of financial corporations as providers of financial services, namely their participation in the process of social reproduction. The analysis can be deepened by identifying nine subsectors within the financial sector (Central Bank, deposit-taking corporations except the Central Bank, money market funds (MMF), non-MMF investment funds, other financial intermediaries except insurance corporations and pension funds, financial auxiliaries, captive financial institutions and money lenders, insurance corporations, pension funds). The rationale for subsectoring is nature of financial activiies of institutional units belonging to the financial corporations' sector. In addition, subsectors can be combined into different segments depending on the objectives of the study: System of National Accounts divides financial corporations into three categories: financial intermediaries, financial auxiliaries and other financial corporations. Monetary and Financial Statistics applies a different approach for the financial corporations' subsectoring. All subsectors are grouped into two segments: money-issuing (Central Bank and other depository corporations – deposit-taking corporations except the Central Bank and money market funds) and money-holding (the rest of subsectors). The combination of methodological and informational potential of the System of National Accounts and Monetary and Financial Statistics provides a comprehensive analysis of the functioning of the financial sector by highlighting various aspects of the financial corporations' activities.

Facilitating Climate-Smart Investments

This study aims to determine: the practice of managing pension funds according to Islamic law and positive law, as well as the similarities and differences in the management of pension funds in Islamic law and positive law. This study uses the library research method, which means that the collection of data or materials needed in writing this thesis comes from books, scriptures, theses, journals and theses. The results of this study indicate that the practice of managing pension funds according to Islamic law is appropriate as long as the pension fund is not used as a deposit and the pension fund is immediately withdrawn, not stored in the banking system, worrying that the bank is still a conventional system. The practice of managing pension funds according to positive law: A pension fund is an income received every month by an employee who is no longer able to work, to finance his next living, so that he is not left stranded when he is powerless to find other income. Article 1 Point 4 of Law Number 11 of 1992, states that a financial institution pension fund is a pension fund established by a bank or life insurance company, to administer a defined contribution pension program for individuals. Similarities and differences in pension fund management in Islamic law and positive law. Pension fund management in Islam is based on a contract agreed upon by both parties and does not contain usury, maisir, tadlis, gharar and other elements prohibited in Islam, while in conventional it uses general management laws and does not involve both parties. initial agreement, so that there are fears of elements that are prohibited from transactions that are prohibited in Islam. The similarity is that they manage funds with the aim of providing benefits to retired customers when they are no longer working in government agencies.

Pension funds are expected to align their investment strategy with climate targets and ESG. To avoid criticism of greenwashing, there is a growing need for credible communication and transparency on ESG. Switzerland has a long tradition of self-regulation in the financial sector, so it is not surprising that the Swiss Pension Fund Association (ASIP) published an ESG reporting standard for its members in 2022, which is to be applied for the first time for the 2023 financial year. We analyze the first experiences and challenges of large pension funds with the implementation of the ASIP standard, where the opportunities and challenges lie and what best practice recommendations can be derived for the future. We regularly exchange experiences with stakeholders from various pension funds, in our role as responsible for the Swiss Association for Responsible Investments (SVVK-ASIR) and as a member of the Board of Directors of the Basellandschaftliche Pensionskasse (blpk). In 2023, this exchange was formalized through interviews with representatives of Swiss pension funds and resulted in a bachelor’s thesis, which forms the original basis for this paper (Meier Nachhaltigkeitsberichterstattung durch Vorsorgeeinrichtungen in der Schweiz - Handlungsempfehlungen für ein glaubwürdiges Reporting. Bachelor Thesis. Fachhochschule Nordwestschweiz, Hochschule für Wirtschaft., 2023). The main findings, the experience of pension funds since then and developments and changes in self-regulation are presented in this text. Key Findings: ESG reporting is complex and is aimed at a heterogeneous audience with different levels of knowledge and information needs. We find that the preparation is associated with considerable time and effort. Although there are improvements in the definition of relevant key figures, the reliable availability still appears to present some challenges. To maintain the credibility of the reporting and to prevent accusations of possible greenwashing, we propose that the best way forward is transparent and honest reporting, that also clearly identifies the problems and challenges where targets have not yet been met.

The purpose of this article is to investigate the technical efficiency of Indian pension funds using data envelopment analysis (DEA) and to assess the reasons of inefficiency if any. This article analyzes the efficiency performance of all the pension funds available to Indian subscribers from the year 2015–2019 using radial measurers (BCC) of DEA based on secondary data collected from the annual reports of New Pension System Trust. Findings indicate that the average efficiency of Indian pension funds was 75.38% and this sector experienced overall stability in the average efficiency levels during the study period. Almost 40% of the pension funds operated efficiently in one or more years during the study period. The minimum slack was found in the input “expense ratio.” This confirms that risk associated with investments is the cause of inefficiency and not the expense ratio in the Indian pension sector. Tobit regression is applied to explore the main drivers of efficiency in the India pension funds. The study finds that fund size has positive association with the efficiency of the pension funds. Public sector funds were more efficient than the private sector funds. This study is first of its kind that has assessed the efficiency of Indian pension funds. The study brings into light the operating characteristics and efficiencies of the Indian pension funds for the period 2015–2019 and therefore holds important insights for policy makers, practitioners, and decision‐makers.

>With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporation’s long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a company’s long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension funds’ trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds’ beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to “socially responsible investing’’ (SRI) and when applied to corporations, it is termed “socially responsible corporate conduct (SRCC).” We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients’, i.e. pension funds’, best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies’ stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic.

Pension funds are the fastest growing of all financial institutions. They now cover half the labor force and represent one-eighth the financial assets of the entire household sector. This study investigates whether pension savings represent a substitution for other forms of personal saving. Past analyses reveal no consensus on this question. The hypothesis examined in this study is that people disregard pension savings and save in other ways and amounts. To the extent this is true, pension funds may enhance economic growth by increasing the aggregate level of savings available for investment. If, on the other hand, people save less in other forms, pension funds may be an important area of concern in the increasing rivalry among financial intermediaries for household deposits. Highlighting the implications of this analysis is the virtual certainty that pension funds will continue to increase in scope and size. As an economic force, pension funds can not be ignored. Their assets presently exceed $258 billion and, with contributions rising at nearly 15 percent annually, they enjoy the fastest growth of all financial institutions.' The economic impacts of pension funds are most noticeable in the channeling of funds to capital markets, the redistribution of income, and wage contract negotiations. Less obvious economic effects, however, may be emerging in the spending and savings habits of many wage earners. And, considering the importance of savings on capital formation and economic stability, the possible impact on saving becomes particularly significant. A savings level change, resulting from pension contributions, could have far reaching implications in terms of national growth and stability. Vincent P. Apilado, Ph.D., is Assistant Professor of Finance in the College of Business Administration at Arizona State University . This paper was submitted in August, 1971. 1 Charles D. Ellis, Danger Ahead for Pension Funds, Harvard Business Review, May-June, 1971, p. 51. Problem and Hypothesis Employees' contributions to pension plans represent a forced saving unavailable to them until retirement or termination prior to vesting.2 Hence, workers may view these contributions as a tax on their earnings without benefits related to present needs. The savings behavior of these individuals may then be wholly independent of their pension contributions. Conversely, individuals who directly associate pension contributions with other forms of saving, may assume their retirement income problems are resolved and decrease the amount saved in other forms. Or, the prospect of a secure retirement income, plus a guaranteed standard of living, can spur them to increase their 2Vesting refers to the right of an employee, on leaving employment before retirement, to receive all or part of the retirement benefits purchased on his behalf by employer contributions. The extent of this right and the requirements for acquiring it depend on the criteria of the pension plan covering the particular worker. See H. E. Davis and A. Straeser, Private Pension Plans, 1960 to 1969--An Overview, Monthly Labor Review, July, 1970, pp. 45-56.

This article describes how the quarterly output of the financial services sector is measured in the National Accounts. Then at a sub-sector level, an analysis of recent employment and output trends is presented to describe the impact of the current economic downturn on the activity of the sector. The sub-sectors analysed include banks, building societies, investment trusts, life insurance, non-life insurance and pension funding.

The Financial Services Authority is a state administration tasked with administering a system of regulation and supervision of all activities in the financial sector, such as the banking sector, capital market and non-bank financial services sector, such as insurance, pension funds, financing institutions and others. The phenomenon of a decrease in the net operating margin of Islamic banks attracted the author's interest to investigate further. This purpose of this study is to determine the effect of operating expense on operating revenue ratio (BOPO) and non performing financing (NPF) on the net operating margin (NOM) of Islamic Commercial Banks (BUS) registered on the OJK, either partially or simultaneously. This study uses quantitative methods with secondary data in the form of financial statements. The population are 12 BUS, but the sample used are only 6 BUS for 5 years with purposive sampling method. The analytical technique used is data normality test, product moment correlation test, multiple correlation test, multiple regression test, coefficient of determination test, t test and F test. The results of t test indicate that BOPO has a significant effect partially on NOM, while NPF has no significant effect partially on NOM. The results of the F test show that the BOPO and NPF have a significant effect simultaneously on NOM with a percentage coefficient of determination is 69.8%.

Purpose – Money laundering is one of the most widespread phenomena in the financial world which is seriously threatening the integrity of system and representing a significant risk to a country’s economic development, as well as its progress in geopolitical and infrastructural terms. In recent years, Bosnia and Herzegovina (B&H) has frequently appeared in various studies, articles, and media publications as one of the countries where this phenomenon is becoming more and more popular, and now we are witnessing that our country is being referred to as a “paradise” for money laundering. This research will focus on the role of Bosnia and Herzegovina’s financial and business sectors, analyzing their role in the money laundering process and attempting to light up on some of the most common methods related to this phenomenon in Bosnia and Herzegovina. Methodology/Research Approach – The research will be conducted using both qualitative and quantitative methods. A detailed analysis of secondary sources of information will be carried out, along with the collection of primary data on the given topic. A review of previously published works and relevant literature will also be conducted. Limitations/Implications – The topic of this research is relatively unexplored and does not receive enough attention in the existing literature/studies, which presents a challenge in gathering needed data. The high unavailability of key information may limit the depth of analysis and accuracy of conclusions. Given the limited data sources, the research has been conducted in accordance with the available information from the approximately last 10 years, which may affect the scope and validity of the findings. Practical Implications – This research contributes to a better understanding of the money laundering phenomenon, with a particular focus on the role of the business and financial sectors in Bosnia and Herzegovina. The research results can help in developing more effective strategies to combat money laundering, thereby reducing the harmful economic and social consequences that this phenomenon brings. Practical recommendations may include improvements in legal provisions and strengthening oversight and control in the business and financial sectors. Originality – This research provides an original perspective on money laundering in the context of Bosnia and Herzegovina’s business and financial sectors and encourages further discussions and deeper investigations. Previous studies can mostly be characterized as reviews, whereas this paper brings together all relevant macroeconomic variables and variables of interest in this case, offering a deeper insight into and addressing a previously unexplored area.

Investment has been low in the last decades (both by firms and by government). This does not only hold for fixed capital including R&D, but also for investment in climate, housing, infrastructure and education. Productivity has been low too and should be stimulated, as is elaborated in the Draghi report. A problem is that firms invest a considerable part of their savings in financial assets abroad. Moreover, assets held by banks and pension funds are mainly invested in mortgages and financial assets abroad. In this paper we analyse scenarios were banks, pension funds, and firms redirect part of their financial investments to investment in fixed capital and government investment. Next to demand effects this output growth is induced by productivity growth, in which productive government investment also plays a role. Finally, inflationary tendencies are controlled by wage and price policies. We elaborate these points for the Dutch economy. This economy is characterised by several stylised facts which constitute a highly interdependent framework: (1) households with positive savings, large pension claims and a huge mortgage debt; (2) firms with large positive savings and large financial claims abroad; (3) a large financial sector with assets mainly invested in mortgages and abroad; (4) a large trade balance surplus; (5) a Central Bank owning a large stock of Dutch government bonds; (6) a government with modest negative savings and a moderate debt; and (7) a centralised system of wage negotiations. In the paper we use an open economy post-Keynesian stock-flow consistent model with a welldeveloped financial sector. Next to the banking sector we distinguish a pension fund which invests to a large extent abroad. Firms invest a considerable part of their retained earnings abroad in financial assets. We also introduce an inflationary process, based on conflict inflation, which allows for external inflation shocks. The model recognises the balance sheets and portfolios of financial assets of the six sectors in the model – the prices of these assets are explicitly modelled. The financial flows leading to wealth changes are analysed and both wealth effects and transmission channels for the impact of monetary policy play an important role. Finally, productivity growth is affected by both private and government investment in a variant of Verdoorn’s Law. We estimate the model, using quarterly stock-flow consistent data for the Dutch economy. This enables us to reproduce the stylised facts presented above. From simulations with our model, we show the positive effects of redirecting investment to stimulate the economy. We also find a rebound effect if these redirected investments are discontinued.

Private pension funds systems have developed at different paces, and with differentstructures, in the three Baltic states. In Estonia and Latvia, a three-pillar pension system was established. Lithuania introduced a two-pillar system without mandatory pension saving. The pension funds systems in the Baltic states are in the early stage of development and vary because of differing financial system structures in each country. The Baltic financial sectors are still less developed than the financial sectors of EU countries. Financing in the Baltics is dominated by the banking sector, which is highly concentrated and owned by international financial conglomerates. The Baltic securities sector has been stagnant, even during the recent period of growth. The regulations of the pension funds portfolios in Estonia and Lithuania reflect the situation in the financial market. In Latvia, regulations on pension funds policy reflect a government wish to keep money at home. Banks in these countries are the main power behind the development of the pension funds system. The Baltic countries will become EU members on 1 May 2004. Their future economic, financial and pension funds system will be shaped by EU legislation and the EU integration process...

There are three domestic private non-bank sectors: industrial and commercial companies; the personal sector; and the pension funds plus insurance companies. However, the dynamic properties of the whole LBS model, including the parameters described, were studied by simulation. In contrast to the company and personal sectors, the pension fund and insurance company sector was assumed to choose among only six assets and only two of these foreign currency short-term assets and foreign currency securities were subject to rationing during the estimation period. The estimates are based on a model structure that imposes many restrictions and which were not tested. This chapter derives the market-clearing asset prices and then describes some simulation results from the financial model combined with the full LBS macro-econometric model of the UK. Pension and insurance fund portfolios are dominated by long-term assets and the interest rate change causes an immediate switch in their holdings.

The severity of the last financial crisis for the European financial markets, the economy, and society makes the scientists and financial analysts start to seek answers with great openness not only to the question of how to reduce its negative effects in the future, but also of how the system regulating financial institutions will look like in the future. The article discusses three options of the positions on the future regulatory tendencies: theoretical alternative, option presented in reports and expert studies, and the version arising from observations of the current practices of functioning of the European banks. The aim of the article is to confront the views on the future trends in the regulation of the banking sector from theoretical, consulting point of view, and the view formulated on the basis of evalua-tion of banking practices.