Repayment of bank loans


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    IMPLAN Support
    Hello Marshall, In input-output accounting in the U.S., on which Implan is based, interest payments can be thought of as being separated into two parts: interest payments for lending of assets, e.g., cash, and interest payments that are in effect for the value of services provided by financial institutions; the latter type of interest payments are not directly measurable and must be imputed.  Only the imputed interest payments are included in firms’ intermediate purchases.  For example, a bank might offer a business a “free” checking account.  The value of the imputed interest would be the difference between the interest income the business could earn were it to lend that money and the interest paid by the bank on the balance of the checking account.  That difference functionally represents a service charge for maintaining the checking account, providing debit cards, processing information, etc.  For another example, a business might borrow money from a bank and pay an interest rate of 5%.  The bank would give the business various services, e.g., processing the loan, for “free.”  In this case, the imputed interest would be the difference between 5% and the amount of money the bank could earn were it to lend the same amount of money without providing any concomitant services.   The remaining type of interest income, i.e., interest income that is solely based on returns to lending, is measured on a net basis and is part of the other property income component of value added.   That said, principal payments are treated as an asset swap (an exchange of capital). Payments by an industry to banking represent only imputed interest payments for services or payments for other services provided by the banking industry. Regards, IMPLAN Staff
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