Fair Value Accounting and Measures of Corporate Profits in the 

U.S. National Accounts* 

Dylan G. Rassier 

U.S. Department of Commerce 

Bureau of Economic Analysis 

Washington, DC 

dylan.rassier@bea.gov 

Proceedings of the 2013 Federal Committee on Statistical Methodology Research Conference 

Abstract 

The U.S. Bureau of Economic Analysis (BEA) uses quarterly source data to measure quarterly 

U.S. corporate profits. Consistent with international guidelines, BEA adjusts the source data to 

remove holding gains and losses; however, fair value accounting (FVA) practices call into 

question the completeness of the adjustments. This paper evaluates the source data that underlie 

quarterly measures of corporate profits in the financial industries. The primary objective is to 

identify FV gains and losses that may lead to measurement error in quarterly corporate profits. 

A secondary objective is to question the exclusion of FV gains and losses related to operations 

that may rely on FV gains in lieu of service fees for funding. The results reveal significant FV 

losses reported in source data for the recessionary period 2007Q4 to 2009Q2. In addition, some 

evidence suggests that not all FV losses are removed and may affect published quarterly 

corporate profits. Finally, the complete exclusion of FV gains and losses yields persistently 

negative measures of economic profits for firms that engage in some types of activities. The 

results indicate that current source data available to measure quarterly corporate profits in the 

financial industries are inadequate without significant efforts made to adjust the data, which are 

often not practical or possible during a typical estimation cycle. The extent of the inadequacy 

was highlighted during the 2008 financial crisis. Thus, quarterly source data based on surveys 

designed for statistical purposes would be a valuable alternative to source data currently 

available to measure quarterly corporate profits in the financial industries. 

JEL Codes: E01, E23, M41 

Keywords: measurement, national accounts, production, fair value accounting 

*

The views expressed in this paper are solely those of the author and not necessarily those of the U.S. Department of 

Commerce or the Bureau of Economic Analysis. 
 

                                                            

 

 

1. Introduction 

Under U.S. financial accounting rules, fair value accounting (FVA) is a practice in which an 

asset or liability is treated as sold at fair value even when no sale takes place. As a result, related 

holding gains and losses may be recognized in a firm’s income statement. In contrast to 

financial accounting rules, international guidelines for national accounting require statisticians to 

exclude holding gains and losses from national income and product statistics because holding 

gains and losses reflect changes in prices but do not reflect transactions and do not arise from 

production. Thus, where U.S. national income and product statistics rely on data sourced from 

financial accounting records, adjustments are required to remove holding gains and losses 

attributable to FVA practices. Given the size of financial assets and liabilities subject to FVA at 

some U.S. financial firms, potentially misleading effects of FVA on measured performance of 

the firms has been an area of increased scrutiny since the 2008 financial crisis (Bhat, et al., 2011; 

Laux and Leuz, 2010). Likewise, challenges associated with identifying FV gains and losses in 

U.S. financial-based source data call into question the completeness of the adjustments required 

for national accounting purposes (Rassier, 2012).1 

In the U.S. National Income and Product Accounts (NIPAs), gross domestic product (GDP) and 

its components reflect the production of goods and services for final consumption and 

investment; gross domestic income (GDI) and its components reflect the related income 

generated in production. Consistent with international guidelines, the U.S. Bureau of Economic 

Analysis (BEA) makes a point of removing holding gains and losses from source data. In the 

case of quarterly GDP, BEA generally measures components with source data based on surveys 

that are designed to be consistent with national accounting concepts. In the case of quarterly 

GDI, BEA measures some components with survey-based source data and other components 

with financial-based source data. In particular, the corporate profits component of GDI is 

measured on a quarterly basis with financial data reported on firms’ quarterly income statements. 

The financial data include holding gains and losses attributable to FVA practices.2 

As a simple illustration, imagine during a given accounting period a firm uses cash to purchase 

equity securities for trading purposes. Under international guidelines for national accounts and 

under U.S. financial accounting rules, the securities are recognized as an asset at the market 

value on the acquisition date. At the end of the accounting period, any change in value is 

recorded under the U.S. rules as a gain or loss in the firm’s income statement, regardless of 

whether the securities have been sold. In contrast, the international guidelines treat the change in 

value as a revaluation, which by design does not affect income because there is no corresponding 

production. Thus, using the firm’s income statement to measure corporate profits that are 

consistent with the international guidelines requires an adjustment to remove the gain or loss. 

Approximately 10 percent of GDI is attributable to corporate profits in recent periods. However, 

during the recent recession that began in the fourth quarter of 2007 and ended in the second 

1

 In addition, Palumbo and Parker (2009) suggest changes to the international guidelines for national accounting in 

response to the 2008 financial crisis. 

2

 In addition to quarterly financial data used to measure quarterly corporate profits, BEA measures annual corporate 

profits using data reported on firms’ annual corporate income tax returns. While corporate income tax returns may 

also include FV gains and losses, the scope of this paper is limited to quarterly measures. 

1
 

                                                            

quarter of 2009 (i.e., 2007Q4 to 2009Q2), corporate profits as a share of GDI decreased to as 

little as 4.6 percent in 2008Q4. Shares for the other components of GDI either increased or 

remained relatively steady. In addition, shares of corporate profits earned in domestic financial 

industries and domestic non-financial industries are approximately 25 percent and 60 percent, 

respectively, in recent periods with the remaining earned in the rest of world (RoW).3 However, 

also in 2008Q4, corporate profits earned in financial industries decreased to negative 10.0 

percent and corporate profits earned in non-financial industries increased to 75.5 percent. 

While there should be no surprise that aggregate GDI decreased during the recession, the 

disproportionate decrease in corporate profits relative to the other components of GDI is worthy 

of further scrutiny in light of source data that include FV gains and losses. Likewise, the 

significant decline in the share of corporate profits earned in the financial industries provides 

incentive for further inquiry because the removal of FV losses by BEA was particularly 

important but challenging in the financial industries during the recession. Thus, declines in 

corporate profits in the financial industries may reflect FV losses to the extent that losses were 

not identified in quarterly financial-based source data. 

This paper evaluates quarterly financial-based source data that underlie quarterly measures of 

U.S. corporate profits in the financial industries. The primary objective of the paper is to 

identify FV gains and losses that may lead to measurement error in quarterly corporate profits. 

To that end, the paper reports results from three quarterly data sources for the first quarter of 

2006 to the fourth quarter of 2010 (i.e., 2006Q1 to 2010Q4): quarterly financial reports filed 

with the Securities and Exchange Commission (SEC), quarterly call reports filed with the 

Federal Deposit Insurance Corporation (FDIC), and quarterly insurance data reported by the 

Insurance Services Office, Inc. (ISO). While failure to completely remove FV gains and losses 

may not have a significant effect on aggregate GDI, the effect on corporate profits could be 

substantial, and corporate profits alone are an important and closely watched statistic. 

A secondary objective of the paper is to question the exclusion from income and product 

measures of FV gains and losses related to some types of activities. Some firms appear to use 

FV gains in lieu of service fees to fund operations such as market making activities or capital 

raising activities, but the international guidelines for national accounting exclude holding gains 

and losses from national income and product statistics regardless of the underlying purpose. 

Thus, using a small sample of individual firms, the paper explores an alternative to the complete 

exclusion of holding gains and losses related to some types of activities. 

The results reveal significant FV losses reported in quarterly source data for the recessionary 

period 2007Q4 to 2009Q2. While the results confirm that source data have been adjusted by 

BEA to remove FV losses, some evidence suggests that not all FV losses are removed, which 

may affect published quarterly U.S. corporate profits. Finally, the analysis of some types of 

activities at individual firms suggests that the complete exclusion of FV gains and losses yields 

persistently negative measures of economic profits. The paper concludes that current quarterly 

source data available to measure quarterly corporate profits in the financial industries are 

inadequate without significant efforts made to adjust the data, which are often not practical or 

3

 In the NIPAs, financial industries include financial and insurance firms as well as bank and other holding 

companies. 

2
 

                                                            

 

possible during a typical estimation cycle. The extent of the inadequacy was highlighted during 

the 2008 financial crisis. Thus, quarterly source data based on surveys designed for statistical 

purposes would be a valuable alternative to source data currently available to measure quarterly 

corporate profits in the financial industries. 

The paper is organized in four sections that follow. The next section presents a summary of the 

treatment of corporate profits and holding gains and losses in the System of National Accounts 

2008 (SNA). The third section outlines the measurement framework for corporate profits in the 

U.S. national accounts and discusses characteristics of data sources underlying the corporate 

profits measures. The fourth section presents results of the data analysis. The last section 

concludes. 

2. Corporate Profits and Holding Gains and Losses in the SNA 

To provide some context for corporate profits in national accounts generally and the NIPAs 

specifically, this section provides a brief overview of the SNA with emphasis on the SNA 

treatment of corporate profits and holding gains and losses. The SNA is a sequence of accounts 

that reflect stocks of assets and liabilities and related economic flows. The sequence includes 

three categories of accounts: 1) balance sheets, 2) current accounts, and 3) accumulation 

accounts. Balance sheets reflect stocks of assets and liabilities; the difference between assets and 

liabilities is net worth. Current accounts include a production account, which reflects 

production, and income accounts, which reflect the generation and distribution of income earned 

in production. Accumulation accounts reflect changes in assets, liabilities, and net worth as a 

result of volume changes, price changes, and saving from production. 

Each account in the sequence yields a balancing item or residual that is carried forward to the 

next account in the sequence. The sequence starts with the production account and ends with the 

balance sheets. To understand the role of corporate profits and holding gains and losses in the 

SNA requires only a summary limited to three accounts in the sequence: 1) the production 

account, 2) the primary distribution of income account, and 3) the revaluation account. 

Corporate profits are generated through production or property income, which may or may not 

result from production, and are recorded in the primary distribution of income account. Holding 

gains and losses are generated by holding assets and liabilities and are recorded in the 

revaluation account.4 

2.1. Corporate Profits in the SNA 

Figure 1 shows a summary of the production account and the primary distribution of income 

account of the SNA. The production account yields value-added as a residual between output and 

intermediate consumption of materials, energy, and purchased services. Value-added is referred 

4

 The summary here is simplified in four ways. First, the summary is limited to a national level without making 

distinctions for institutional units, sectors, establishments, and industries. Second, the summary is limited to gross 

measures without including net measures. In the SNA, the difference between gross and net is consumption of fixed 

capital. Third, potential flows to and from RoW are omitted. Fourth, “operating surplus” includes both incorporated 

and unincorporated enterprises. In the SNA, “operating surplus” is the surplus from production accruing to 

incorporated enterprises, and “mixed income” is the surplus from production accruing to unincorporated enterprises 

owned by households. 

3
 

to in the SNA as gross domestic product or GDP. Value-added is carried forward to the primary 

distribution of income account, which shows the generation of income from production and the 

allocation of income to the primary factors involved in production: labor, capital, and 

government. Income accrues to primary factors of production as a result of their direct 

contribution to production or through the ownership of assets used in production. 

In concept, value-added equals the primary income generated from production. The generation 

of income account, which is one of two subaccounts in the primary distribution of income 

account, shows value-added used up by producers through payments of compensation to 

employees and payments of production taxes to governments (net of subsidies received from 

governments). Property income payments are excluded from uses in the generation of income 

account because not all property income payments are attributable to assets used in production. 

The balancing item in the generation of income account is operating surplus, which is the surplus 

from production prior to any deductions for property income payments. 

The second subaccount in the primary distribution of income account is the allocation of primary 

income account. The allocation of primary income account records receipts of primary incomes 

and also records property income receipts and payments. The allocation of primary income 

account is split into an account for entrepreneurial income and an account for the allocation of 

other primary income. Entrepreneurial income reflects primary income received by businesses, 

adjusted by property income receipts and payments attributable to business. Corporate profits 

are part of entrepreneurial income. Entrepreneurial income is carried forward to the allocation of 

other primary income account, which records primary income received by labor and government 

and property income receipts and payments attributable to other than business. The balancing 

item in the allocation of other primary income account is national income. 

2.2. Holding Gains and Losses in the SNA 

In the SNA, the production and income accounts do not include holding gains and losses on 

assets and liabilities. Holding gains and losses result from merely holding assets and liabilities 

without any economic transformation. Holding gains and losses reflect changes in prices but do 

not reflect transactions and do not arise from production. Thus, rather than including holding 

gains and losses in production and income, the SNA records holding gains and losses in a 

separate account called the revaluation account. 

Holding gains and losses include gains and losses attributable to FVA practices. The SNA does 

recommend recording memoranda in the balance sheet accounts to reflect FV losses associated 

with non-performing loans. Likewise, the research agenda to the SNA suggests a wider use of 

FVA for loans. However, no mention is made to expand the production and income accounts to 

include FV gains and losses generated in lieu of service fees as a regular course of business to 

fund operations. 

3. Corporate Profits in the U.S. NIPAs 

In the NIPAs, production is estimated with two conceptually equivalent measures: GDP and 

GDI. GDP is estimated based on expenditure for final consumption and investment; GDI is 

4
 

              

   

   

     

estimated based on income generated in production. GDP and GDI are also conceptually 

equivalent to value-added. Value-added is measured every five years in the U.S. benchmark 

input-output accounts, which yield a balanced framework that also includes production measured 

by expenditures and income. Final consumption and investment expenditures are extrapolated 

forward in the NIPAs on a quarterly basis with revisions incorporated annually. Thus, from a 

practical perspective, U.S. GDP is an expenditure-based measure. 

U.S. GDI from a practical perspective is an income-based measure. Rather than calculating 

operating surplus as a residual in the generation of income account, BEA calculates operating 

surplus as a sum of independently estimated components for entrepreneurial income and property 

income attributable to private enterprises. Compensation, taxes on production less subsidies, and 

the components of operating surplus are measured in the NIPAs annually and extrapolated 

forward on a quarterly basis. Improvements are introduced to GDI during annual revisions and 

during benchmark revisions approximately every five years. 

3.1. Measurement of U.S. Corporate Profits 

In the SNA, an identity exists between value-added in the production account and the generation 

of income in the primary distribution of income account. In particular, value-added (V) can be 

written as the sum of compensation (W), entrepreneurial income (Π), net property income (R), 

and taxes on production (T) less subsidies (S). If value-added and the income components are 

measured without error in accordance with economic accounting principles, the accounting 

identity is as follows: 

* * * * * * V  W    R  T  S . (1) 

The left side of equation (1) reflects production, and the right side reflects the related income 

generated in production. 

The asterisks in equation (1) indicate actual values without measurement error. In practice, the 

production and income components in equation (1) are generally measured with some amount of 

random error (  ) attributable to imperfect data sources and estimation methodologies. The 

objective of national accounting statisticians is to minimize . Entrepreneurial income in 

equation (1) can be measured either directly or residually. If entrepreneurial income is measured 

directly, measurement error is directly attributable to entrepreneurial income as follows: 

V W  R T S (V   )  (W   )  (   )  (R   )  (T   )  (S   ) . (2) 

If entrepreneurial income is measured residually, measurement error related to production and 

the other income components is attributable to entrepreneurial income as follows: 

V W R T S   V W  R T  S  (      ) . (3) 

Thus, entrepreneurial income is subject to measurement error whether it is measured directly or 

residually. 

5
 

            

   

                                                            

In the NIPAs, quarterly corporate profits are measured directly using data sourced from quarterly 

financial accounting records that reflect FV gains and losses. If FV gains and losses are not 

completely removed from the source data,  in equation (2) is affected according to the SNA 

requirement to exclude all holding gains and losses. Thus, the primary objective of this paper is 

to identify FV gains and losses that may contribute to in equation (2). 

If some firms use FV gains to fund operations in lieu of service fees that would otherwise be 

charged for services such as market making activities or capital raising activities, the SNA 

requirement to exclude all holding gains and losses is subject to question because the holding 

gains and losses may reflect returns to capital that are not reflected in traditional accounting 

measures of income. For example, a trading firm that assumes risks associated with market 

making activities receives some income from service fees charged to clients and some income 

from FV gains on the market making activities. In the absence of FV gains, either higher service 

fees would be required to compensate for the risks assumed or the firm may simply not assume 

the risk and, therefore, not engage in the activities. 

For activities in which FV gains and losses (G) are generated in lieu of service fees, the 

accounting identity in equation (1) can be rewritten as follows: 

* * * * * * * V  W  (  G )  R  T  S . (4) 

From a practical perspective, the challenge is determining FV gains and losses attributable to 

production. Thus, equation (2) should be revised as follows to reflect the measurement error 

associated with determining G in equation (4): 

V W  G R T S (V   )  (W   )  (   )  (G   )  (R   )  (T   )  (S   ) . (5) 

A secondary objective of this paper is to explore an alternative to the complete exclusion of 

holding gains and losses related to some types of activities. However, establishing criteria to 

determine G and minimize G in equation (5) is left for future work. 

3.2. Source Data for U.S. Corporate Profits 

BEA generally uses data sourced from financial accounting records for quarterly indicators of 

corporate profits.5 In particular, BEA uses the following quarterly source data: 1) quarterly 

financial reports (QFRs) published by the U.S. Census Bureau, 2) financial reports filed with the 

Securities and Exchange Commission (SEC), 3) call reports filed with the Federal Deposit 

Insurance Corporation (FDIC), and 4) property and casualty insurance data reported by 

Insurance Services Office, Inc. (ISO). 

Census Bureau QFRs: Census Bureau publishes QFRs for information, manufacturing, mining, 

retail and wholesale trade, and professional, scientific and technical industries. BEA uses the 

QFRs to construct quarterly indicators for corporate profits. QFRs include a sample of publicly 

5

 For more information on corporate profits in the NIPAs, see Hodge (2011) and Bureau of Economic Analysis 

(2002). 

6
 

owned and privately owned firms and also include adjustments to remove holding gains and 

losses for use in the NIPAs. Thus, this paper excludes an analysis of QFRs in order to focus on 

the other three data sources that are more likely to include FV gains and losses. 

Quarterly SEC Financial Reports: Unaudited quarterly financial reports are filed by publicly 

owned firms with the SEC. BEA extracts income statement data from Compustat for some 

construction, financial, insurance, real estate, transportation, utilities, and other industries. For 

the financial and insurance industries, quarterly indicators for corporate profits come from 

Compustat for NAICS 52229 (other non-depository credit intermediation), NAICS 523 

(securities, commodity contracts, and other financial investments and related activities), NAICS 

52411 (direct life, health, and medical insurance carriers), and NAICS 52599 (other financial 

vehicles). The Compustat database does not provide a field to distinguish FV gains and losses 

included in earnings. Thus, for quarters with substantial changes in market values of securities, 

BEA can only resort to a small sample of quarterly financial reports filed with the SEC by 

individual firms to adjust for FV gains and losses. 

Quarterly FDIC Call Reports: Depository institutions are required to file quarterly call reports 

with the FDIC. FDIC publishes financial data in their Statistics on Depository Institutions (SDI) 

for all FDIC-insured institutions. BEA extracts income statement data from SDI for some 

agriculture, financial, and other industries. For the financial industries, quarterly indicators for 

corporate profits come from SDI for NAICS 521 (monetary authorities-central bank), NAICS 

5221 (depository credit intermediation), and NAICS 5223 (activities related to credit 

intermediation). The SDI provides fields to distinguish FV gains and losses on securities. 

However, FV losses (gains) recognized as impairments (recoveries) are indistinguishable from 

other noninterest expenses. Thus, for quarters with substantial FV losses (gains) charged to 

impairments (recoveries), BEA must resort to some other source such as quarterly financial 

reports filed with the SEC to adjust for impairments (recoveries). 

Quarterly ISO Insurance Data: ISO reports quarterly data on underwriting income, investment 

income, and catastrophe losses for property and casualty insurance firms. BEA uses the ISO 

data to construct quarterly indicators of corporate profits for NAICS 524126 (direct property and 

casualty insurance carriers). The ISO data do not distinguish FV gains and losses. Thus, for 

quarters with substantial FV gains and losses, BEA must resort to some other source such as 

quarterly financial reports filed with the SEC to adjust for FV gains and losses. 

3.3. FVA under U.S. Financial Accounting Rules 

Under financial accounting rules, FVA is required on a recurring basis (i.e., periodically) for 

some financial assets and liabilities and may be elected for other financial assets and liabilities. 

Nonfinancial assets and liabilities are generally accounted for at historic cost with no 

adjustments for FV gains and losses. However, when the value of a nonfinancial asset or 

liability is considered to be “other-than-temporarily” impaired, FV gains and losses are 

recognized in net income. Since gains and losses associated with other-than-temporary 

impairment (OTTI) are only recognized on a nonrecurring basis, nonfinancial assets and 

liabilities are outside the scope of the present paper. Thus, the focus here is on financial 

7
 

 

                                                            

 

accounting rules that require or allow FVA for financial assets and liabilities.6 Table 1 provides 

a summary of FVA under U.S. financial accounting rules. 

Financial accounting rules distinguish three classes of debt and equity investment securities: 1) 

debt securities intended to be held to maturity (HTM securities), 2) debt and equity securities 

bought primarily for short-term trading purposes (trading securities), and 3) debt and equity 

securities that are available for sale but not classified in the previous two classes (AFS 

securities).7 HTM securities are accounted for at historic cost. FVA is required on a recurring 

basis for trading securities and AFS securities. Trading securities include mortgage-backed 

securities that are held for sale in conjunction with mortgage banking activities.8 FV gains and 

losses generated by trading securities are required under financial accounting rules to be included 

with earnings in the income statement. FV gains and losses generated by AFS securities are 

generally required to be included directly in the other comprehensive income (OCI) portion of 

shareholder’s equity rather than in earnings. 

Financial accounting rules also require FVA on a recurring basis for derivative assets and 

liabilities, including derivatives that qualify as hedges.9 FV gains and losses generated by 

derivative assets and liabilities and derivatives qualified as hedges are required to be included 

with earnings in the income statement. In the aggregate, gains or losses associated with 

derivative assets should be offset by gains or losses associated with derivative liabilities. 

However, earnings available in disaggregated source data may include FV gains and losses 

associated with derivative instruments. Likewise, gains or losses associated with hedged assets 

or liabilities are presumably offset only to the extent of the gains or losses on the qualified 

derivative. Thus, earnings reported in financial statements may include FV gains and losses 

associated with derivative instruments and financial assets and liabilities that have not been 

offset by hedges. 

In addition to requiring FVA for investment securities and derivative instruments, financial 

accounting rules allow companies to elect a fair value option (FVO) for other financial assets and 

liabilities, such as receivables, payables, and debt instruments.10 A FVO election is generally 

applied to an individual instrument and is irrevocable. In addition, similar to trading securities 

and derivative instruments, FV gains and losses associated with an election are required to be 

included with earnings in the income statement. The FVO has been broadly available since 

2008, so earnings reported in recent financial statements may include FV gains and losses 

associated with the financial assets and liabilities covered by the accounting rules. 

6

 Financial accounting rules for FV measurement are provided in Statement of Financial Accounting Standards 

(SFAS) number 157 or topic 820 in the new Accounting Standards Codification (ASC). 7

 Financial accounting rules for investments in debt and equity securities are provided in SFAS number 115 or ASC 

topic 320.

8

 Financial accounting rules for certain mortgage banking activities are provided in SFAS number 65 or ASC topic 

948-310. 

9

 Financial accounting rules for derivative instruments and hedging activities are provided in SFAS number 133 or 

ASC topic 815. 10 Financial accounting rules for the FVO for financial assets and liabilities are provided in SFAS numbers 159 and 

65 or ASC topics 825 and 948-310, respectively. 

8
 

                                                            

 

4. Results 

The primary goal of this paper is to identify FV gains and losses that may lead to measurement 

error in quarterly U.S. corporate profits for financial industries. The results include three 

quarterly data sources for 2006Q1 to 2010Q4: SEC, FDIC, and ISO. While the results do not 

indicate the magnitude of any measurement error, they do provide an appreciation of the extent 

to which source data require adjustments to remove FV gains and losses. In addition, the results 

help to draw inferences whether the adjustments are complete for the recessionary period 

2007Q4 to 2009Q2. 

The discussion of the results is divided into four subsections: 1) provide context based on 

published U.S. corporate profits statistics, 2) report adjustments for each source of data and the 

related adjusted and unadjusted data series, 3) discuss the treatment of FV gains and losses that 

appear to be generated in lieu of service fees, and 4) propose an alternative presentation of 

published U.S. corporate profits that includes information on holding gains and losses. 

4.1. Quarterly U.S. Corporate Profits 

Figure 2 reports published quarterly U.S. corporate profits from 2006Q1 to 2010Q4 for all 

industries, non-financial industries, financial industries, and rest of world (RoW). While 

corporate profits for RoW generally increase over the period, measures for non-financial 

industries and financial industries decrease to a low in 2009Q2 and 2008Q4, respectively. The 

decrease for financial industries clearly drives the decrease for corporate profits in all industries. 

Figure 3 shows published corporate profits by industry as a percentage of all industries. 

Corporate profits for financial industries are generally 20 to 30 percent of total corporate profits, 

but the percentage decreases to a low of negative 10 percent in 2008Q4 with offsetting increases 

in non-financial industries and RoW. 

Figures 4 and 5 provide a breakdown of the component shares of U.S. GDI and U.S. net 

operating surplus (NOS), respectively. In figure 4, corporate profits are approximately 10 

percent of GDI except during the recessionary period 2007Q4 to 2009Q2. Corporate profits fall 

to as little as 4.6 percent of GDI in 2008Q4, which is offset by increases in other components of 

GDI. Likewise, corporate profits are approximately 40 percent of NOS in figure 5 except during 

the recessionary period when the percentage falls to 22.2 percent in 2008Q4. 

Figures 2 through 5 reveal two interesting patterns. First, corporate profits experience a 

disproportionate decline relative to other components of GDI and NOS during the recessionary 

period 2007Q4 to 2009Q2. Second, the disproportionate decline in corporate profits is driven 

largely by decreases in the financial industries. Given the inclusion of mortgage-backed 

securities in the accounting for trading securities and given the concentration of debt and equity 

securities purchased and sold for finance-related activities, financial firms are particularly 

affected by FVA practices.11 For NIPA purposes, the removal of FV gains and losses was 

particularly important but challenging in the financial industries leading up to the cyclical peak 

11 Financial accounting rules for FVA have been under increasing scrutiny since the recession from 2007Q4 to 

2009Q2 and the related subprime mortgage crisis because of the volatile impact the rules have on earnings during 

times of market volatility (Bhat et al., 2011; Laux and Leuz, 2010). 

9
 

in 2007Q4 because of the lack of adequate data on FV gains and losses included in earnings 

reported in quarterly financial statements. Thus, declines in quarterly corporate profits in the 

financial industries may reflect FV losses to the extent losses were not identified by BEA, but the 

patterns shown in figures 2 through 5 are not enough to conclude that corporate profits include 

FV gains and losses. 

4.2. Quarterly Source Data by Industry 

BEA uses quarterly source data for two purposes in measures of U.S. corporate profits. First, the 

data are used to extrapolate quarterly corporate profits for current quarterly estimates of 

corporate profits. Second, BEA uses the data to interpolate quarterly corporate profits between 

annual estimates of corporate profits that are measured with annual tax-based source data during 

annual revisions. Figures 2 through 5 for the period 2006 to 2010 are compiled from data 

published in the 2013 NIPA comprehensive revision, which includes annual corporate profits 

measured with tax-based source data and quarterly corporate profits measured with financialbased source data. The results reported next focus on the quarterly source data that underlie 

NIPA measures of quarterly corporate profits. 

Figures 6 through 11 report unadjusted and adjusted quarterly net income series from source data 

that BEA uses to extrapolate and interpolate quarterly profits for the financial industries. The 

unadjusted series are taken directly from data sources including SEC financial reports, FDIC call 

reports, and ISO insurance data. The adjusted series are the difference between the unadjusted 

series and adjustments for FV gains and losses and other holding gains and losses, provisions for 

credit losses, and income taxes. The adjustments are tabulated in tables 2 through 4 for each 

period and data source. 

Figure 6 includes all firms classified in NAICS 52 (finance and insurance) that are required to 

file quarterly financial reports with the SEC. While BEA does not use the SEC data to measure 

quarterly corporate profits for all NAICS 52 industries, figure 6 demonstrates three points. First, 

firms generally assess the value of their financial assets and liabilities only once each year. For 

many firms, the assessment is at the end of the calendar year. Thus, the dips in the fourth 

quarters of 2007, 2008, and 2009 are presumably attributable to FV losses in addition to any 

changes in actual economic activity. Second, the difference between the unadjusted series and 

the adjusted series in figure 6 demonstrates that adjustments related to FV losses are significant 

during the recession. In 2008Q4, adjustments related to FV losses are almost $150 billion – or 

almost 15 percent of total corporate profits published in the NIPAs – which is determined by 

adding adjustments for gains on trading securities and gains on investments in tables 2 and 3. 

The third point from figure 6 is the sharp decline in 2008Q4 even after the series is adjusted. 

The sharp decline is consistent with corporate profits published in the NIPAs; however, 

corporate profits in the NIPAs are well below zero while the adjusted series in figure 6 is just 

less than zero, which suggests published quarterly U.S. corporate profits may reflect FV losses. 

Figure 7 reports net income for firms classified in NAICS industries for which BEA uses SEC 

data to measure quarterly corporate profits. Patterns in figure 7 are similar to those in figure 6. 

The adjustments related to figure 7 are tabulated in table 2. 

10
 

 

                                                            

 

 

Figure 8 includes all depository institutions classified in NAICS 5221 (depository credit 

intermediation) that are required to file quarterly call reports with the FDIC. The adjustments 

related to figure 8 are tabulated in table 4. For comparison, figure 9 presents all firms classified 

in NAICS 5221 that are required to file quarterly financial reports with the SEC. The related 

adjustments are tabulated in table 3. While the firms included in figure 9 and table 3 are only a 

subset of the firms included in figure 8 and table 4, two observations are worth noting. First, the 

unadjusted series and adjusted series in figures 8 and 9 follow similar patterns—the declines in 

the fourth quarters of 2007 and 2008 completely disappear in both the FDIC and SEC adjusted 

series. Second, the underlying details in table 3 reveal considerable impairments reported in the 

SEC data for 2008Q2 to 2009Q1, and the underlying details in table 4 reveal considerable 

impairments reported in the FDIC data for 2008Q4 to 2009Q2. The impairments generally 

appear to be attributable to FV losses on assets and liabilities assumed under acquisitions 

completed in the previous 12 months, which is permitted under financial accounting rules. Thus, 

impairments are a significant source of FV losses in NAICS 5221. 

Figure 10 presents net income compiled from quarterly data reported by ISO on underwriting 

income, investment income, and catastrophic losses for property and casualty insurance firms 

classified in NAICS 524126 (direct property and casualty insurance carriers). The adjustments 

related to the ISO data are tabulated in table 4 and calculated merely as the difference between 

the source data and BEA’s indicator series. Figure 11 shows net income reported for all firms 

classified in NAICS 524126 that are required to file quarterly reports with the SEC; the related 

adjustments are included with NAICS 522110 in table 3. The series in figures 10 and 11 follow 

similar patterns and are not very different from the previously reported series. 

4.3. FV Gains and Losses Generated in Lieu of Service Fees 

The secondary goal is to explore an alternative to the complete exclusion of holding gains and 

losses related to some types of activities. The point of exploring an alternative can be 

demonstrated by looking at financial data reported to the SEC for firms classified in NAICS 523 

(securities, commodity contracts, and other financial investments and related activities). Table 5 

shows annual consolidated and segmented income statements for a small sample of firms 

classified in NAICS 523.12 

Firms classified in NAICS 523 and included in table 5 engage primarily in two categories of 

activities: 1) investment banking and 2) trading and investing. Investment banking activities 

include activities such as acquisition advisory, underwriting, brokerage, investment advisory, 

financial planning, and wealth management.13 Trading and investing activities include activities 

such as making markets, raising capital, trading, and merchant banking. In the case of 

investment banking, revenues are generally generated through service fees and commissions. 

Revenues may also be generated through service fees and commissions for trading and investing 

12 The same point could be demonstrated with quarterly financial data, but annual data allow a more simplistic 

exhibition for the five-year sample period.

13 Firms may split investment banking and wealth management activities into two separate operating segments. The 

analysis here includes both investment banking and wealth management in one category in order to focus on the 

trading and investing category. 

11
 

                                                            

 

activities. However, as discussed below, firms in NAICS 523 also appear to rely on FV gains in 

lieu of charging service fees for services that they may not otherwise provide. 

In the top panel of table 5, investment banking revenues, service fees, commissions, and other 

revenues are all positive and relatively steady over the five-year period. Investment banking 

revenues decline in 2008, which is a result of reduced economic activity according to the firms’ 

annual reports. Service fees, commissions, and other revenues actually increase slightly in 2008. 

However, trading and investing revenues decline sharply in 2007 and 2008 and are actually 

negative in 2008. Trading and investing revenues do include some service fees and 

commissions, but FV gains and losses also make a significant contribution to trading and 

investing revenues. As a result, the declines in 2007 and 2008 are attributable in large part to FV 

losses as explained in the notes to the financial statements. If BEA completely removes trading 

and investing revenues to avoid the inclusion of FV gains and losses, income before income 

taxes will be negative in each year, which would presumably yield an inaccurate measure of 

economic profits since the firms would have no incentive to continue operating. In other words, 

the FV gains generated by trading and investing appear to be generated in lieu of charging 

service fees. Thus, in contrast to the recommendations of the SNA, the complete removal of FV 

gains and losses is subject to question in the case of trading and investing activities. 

The latter point is demonstrated in the segmented income statements in the lower panels of table 

5. Net revenues include net interest income and non-interest revenues shown in the consolidated 

income statements. Non-interest expenses presumably include the same operating expenses 

itemized in the consolidated income statements, but no detail is reported by segment for noninterest expenses. Income before income taxes declines for the investment banking segments in 

2008, which presumably reflects less economic activity during the recession. Income before 

income taxes also declines sharply for the trading and investing segments in 2007 and 2008, 

which is attributable to declines in net revenues that include significant FV losses. Non-interest 

expenses do not decline in 2007 and 2008. From a national accounting perspective, positive 

returns to the factors of production other than entrepreneurial capital should be offset by negative 

returns to entrepreneurial capital in 2007 and 2008. Likewise, positive returns to the factors of 

production other than entrepreneurial capital should be supplemented by positive returns to 

entrepreneurial capital in 2006, 2009, and 2010. Thus, if FV gains and losses are completely 

removed, corporate profits do not accurately reflect the returns accruing to entrepreneurial 

capital. 

4.4. An Alternative Presentation of U.S. Corporate Profits 

This section briefly proposes an alternative presentation of U.S. corporate profits for the 

financial industries that reflects adjustments for holding gains and losses and reflects the 

inclusion of holding gains and losses that are generated in lieu of service fees.14 As shown in 

table 6, corporate profits are reported initially without adjustments for holding gains and losses. 

Separate adjustments are then shown for two types of holding gains and losses: 1) holding gains 

and losses not generated as a direct result of production and 2) holding gains and losses 

14 Corrado et al. (2012) propose an alternative presentation of the production account and the income accounts for 

the financial industries. The proposal includes information presented on trading gains and losses required to be 

removed for the determination of output, but the proposal does not affect the presentation of corporate profits. 

12
 

generated as a direct result of production. The former holding gains and losses are not included 

in primary incomes, but the latter may be included based on their purpose to replace service fees. 

The remaining line items in table 6 are consistent with current presentation in the NIPAs. 

5. Summary and Conclusions 

This paper evaluates quarterly source data that underlie quarterly measures of U.S. corporate 

profits in the financial industries. The primary objective is to identify FV gains and losses that 

may lead to measurement error in quarterly corporate profits. A secondary objective is to 

question the exclusion of FV gains and losses related to operations that may rely on FV gains in 

lieu of service fees for funding. In addition to summarizing patterns in published quarterly U.S. 

corporate profits for the period 2006Q1 to 2010Q4, the paper reports unadjusted net income 

series and net income series adjusted for FV gains and losses for three quarterly data sources: 

SEC financial reports, FDIC call reports, and ISO insurance data. 

The results reveal four core observations. First, published U.S. corporate profits experience a 

disproportionate decline relative to other components of GDI and NOS during the recessionary 

period 2007Q4 to 2009Q2, which is driven largely by decreases in the financial industries. 

Second, the magnitude of adjustments required to remove FV losses is significant for the 

recessionary period – almost 15 percent of total corporate profits published in the NIPAs for 

2008Q4 – and impairments are a significant source of FV losses in some industries. Third, the 

unadjusted source data series fall well below zero in 2008Q4, but the adjusted series are either 

positive or just less than zero for the same period. The patterns of unadjusted series and adjusted 

series suggest published quarterly U.S. corporate profits may reflect FV losses. Finally, 

completely removing FV gains and losses for firms engaged in trading and investing activities 

yields persistently negative measures of economic profits. Thus, firms engaging in trading and 

investing activities appear to generate FV gains in lieu of charging service fees. 

The results indicate that current quarterly source data available to measure quarterly corporate 

profits in the financial industries are inadequate without significant efforts made to adjust the 

data, which are often not practical or possible during a typical estimation cycle. The extent of 

the inadequacy was highlighted during the financial crisis. Thus, quarterly source data based on 

surveys designed for statistical purposes would be a valuable alternative to source data currently 

available to measure quarterly corporate profits in the financial industries. 

13
 

References 

Bhat, Gauri, Richard Frankel, and Xiumin Martin. 2011. “Panacea, Pandora’s Box, or Placebo: 

Feedback in Bank Mortgage-Backed Securities Holdings and Fair Value Accounting.” Journal of 

Accounting and Economics, 52(2-3), pp. 153-173. 

Bureau of Economic Analysis. 2002. Corporate Profits: Profits before Tax, Profits Tax 

Liability, and Dividends. Methodology paper available at 

www.bea.gov/scb/pdf/national/nipa/methpap/methpap2.pdf. Washington, DC. 

Corrado, Carol A., Marshall Reinsdorf, and Kyle Hood. 2012. “Expanding the Definition of 

Financial Intermediation Services in the U.S. National Accounts.” Paper presented at the 32nd 

General Conference of the International Association for Research in Income and Wealth. 

Boston, MA. 

European Commission, International Monetary Fund, Organisation for Economic Co-operation 

and Development, United Nations, and World Bank. 2009. System of National Accounts 2008. 

New York, NY: United Nations. 

Financial Accounting Foundation, Financial Accounting Standards Board. Statement of 

Financial Accounting Standards. Numbers 65 (September 1982), 115 (May 1993), 133 (June 

1998), 157 (September 2006), and 159 (February 2007). 

Hodge, Andrew W. 2011. “Comparing NIPA Profits with S&P 500 Profits.” Survey of Current 

Business, 91(3), pp. 22-27. 

Laux, Christian and Christian Leuz. 2010. “Did Fair-Value Accounting Contribute to the 

Financial Crisis?” Journal of Economic Perspectives, 24(1), pp. 93-118. 

Palumbo, Michael G. and Jonathan A. Parker. 2009. “The Integrated Financial and Real System 

of National Accounts for the United States: Does it Presage the Financial Crisis?” American 

Economic Review: Papers & Proceedings, 99(2), pp. 80-86. 

Rassier, Dylan G. 2012. “The Role of Profits and Income in the Statistical Discrepancy.” 

Survey of Current Business, 92(2), pp. 8-22. 

14
 

Figure 1: Summary Production and Primary Income Accounts of the SNA 

Uses Resources 

Production Account 

Output 

Intermediate consumption 

Value-added 

Generation of Income Account 

Value-added 

Compensation of employees 

Taxes on production less subsidies 

Operating surplus 

Entrepreneurial Income Account 

Property income 

Entrepreneurial income 

Operating surplus 

Property income

Allocation of Other Primary Income Account 

Property income 

National income 

Entrepreneurial income 

Compensation of employees

Taxes on production less subsidies

Property income

Allocation 

of Primary 

Income 

Account 

Primary 

Distribution 

of Income 

Account 

Source: SNA 2008. 

15
 

 

 

 

Figure 2: U.S. Corporate Profits with IVA and CCAdj 

All Industries

Financial

Non‐Financial

RoW

‐500

0

500

1,000

1,500

2,000

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Billions USD

Source: BEA NIPA table 6.16. 

Figure 3: Industry Shares of U.S. Corporate Profits 

Financial

Non‐Financial

RoW

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Percentage of All Industries

Source: BEA NIPA table 6.16. 

16
 

 

 

   

Figure 4: Component Shares of U.S. GDI 

Compensation

Taxes less Subsidies

Corporate Profits

Other NOS

CFC

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Percentage of GDI

Source: BEA NIPA table 1.10. 

Figure 5: Component Shares of U.S. NOS 

Net Interest

Proprietor's Income

Rental Income

Corporate Profits

Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Percentage of NOS

Source: BEA NIPA table 1.10. 

17
 

 

 

Figure 6: SEC Data Series for NAICS 52 

Unadjusted

Adjusted

‐250

‐200

‐150

‐100

‐50

0

50

100

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Billions USD

Source: Author’s computations based on SEC data. 

Figure 7: SEC Data Series for NAICS 52229, 523, 52411, 52599 

Unadjusted

Adjusted

‐250

‐200

‐150

‐100

‐50

0

50

100

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Billions USD

Source: Author’s computations based on SEC data. 

18
 

 

 

Figure 8: FDIC Data Series for NAICS 5221 

Unadjusted

Adjusted

‐250

‐200

‐150

‐100

‐50

0

50

100

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Billions USD

Source: Author’s computations based on FDIC data. 

Figure 9: SEC Data Series for NAICS 5221 

Unadjusted

Adjusted

‐250

‐200

‐150

‐100

‐50

0

50

100

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Billions USD

Source: Author’s computations based on SEC data. 

19
 

 

 

Figure 10: ISO Data Series for NAICS 524126 

Unadjusted

Adjusted

‐250

‐200

‐150

‐100

‐50

0

50

100

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Billions USD

Source: Author’s computations based on ISO data. 

Figure 11: SEC Data Series for NAICS 524126 

Unadjusted

Adjusted

‐250

‐200

‐150

‐100

‐50

0

50

100

2006Q12006Q22006Q32006Q42007Q12007Q22007Q32007Q42008Q12008Q22008Q32008Q42009Q12009Q22009Q32009Q42010Q12010Q22010Q32010Q4

Billions USD

Source: Author’s computations based on SEC data. 

20
 

Table 1: Summary of FVA under U.S. Financial Accounting Rules 

Type of 

Financial 

Instrument 

Scope Accounting Treatment 

with no Impairment 

Accounting 

Treatment with 

OTTI 

SFAS# 

HTM securities Debt securities with 

intent and ability to hold 

to maturity 

Amortized cost with gains 

and losses included in 

earnings 

FV with losses 

included in 

earnings 

115 

Trading securities Debt and equity securities 

bought and held to sell in 

the near term 

FV with realized and 

unrealized gains and losses 

included in earnings 

FV with losses 

included in 

earnings 

115 

AFS securities Debt and equity securities 

not classified as HTM or 

trading 

FV with unrealized gains 

and losses included in OCI 

and realized gains and 

losses included in earnings 

FV with losses 

included in 

earnings 

115 

HFI loans Direct investment in a 

loan that is held for 

investment 

1) Amortized cost with 

realized gains and losses 

included in earnings or 2) 

FVO 

Probable credit 

losses included 

in earnings 

65 

HFS loans Direct investment in a 

loan that is held for sale 

1) LCMV with realized 

and unrealized gains and 

losses included in earnings 

or 2) FVO 

FV with losses 

included in 

earnings 

65 

Derivatives not 

designated as 

hedges 

Financial assets and 

liabilities generated in a 

derivative 

FV with gains and losses 

included in earnings 

N/A 133 

Derivatives 

designated as FV 

hedges 

Derivatives to hedge 

exposures to change in 

FV of assets or liabilities 

FV with gains and losses 

included in earnings to the 

extent the hedges are not 

effective at offsetting 

changes in FV 

N/A 133 

Derivatives 

designated as 

cash flow hedges 

Derivatives to hedge 

exposures to variable 

cash flows of forecasted 

transactions 

FV with ineffective 

portion of gains and losses 

reported in earnings and 

effective portion of gains 

and losses included 

initially in OCI and 

reclassified to earnings 

when the forecasted 

transaction affects 

earnings 

N/A 133 

Derivatives 

designated as 

foreign currency 

hedges 

Derivatives to hedge 

exposures to changes in 

foreign currency 

exchange rates 

FV with gains and losses 

included in OCI 

N/A 133 

Other financial 

assets and 

liabilities 

Financial assets and 

liabilities elected for fair 

value 

FVO N/A 159 

Source: Author’s summary of SFAS and ASC. 

21
Table 2: Adjustments to SEC Data for NAICS 52229, 523, 52411, 52599 (billions USD) 

Adjustment 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 Gains on Trading Securities 6.6 8.1 6.9 10.4 12.2 10.0 -0.5 -36.2 Gains on Investments 1.0 2.2 -4.3 -1.7 -0.9 3.1 -3.6 -11.0 Other Gains 0.1 0.3 2.4 1.8 0.0 -0.3 -0.8 -0.7 Recoveries (Impairments) 0.0 0.0 0.0 0.0 0.0 0.0 -1.3 -4.4 Provisions for Credit Losses -2.4 -3.0 -3.5 -4.6 -5.0 -5.4 -10.5 -15.7 Income Tax Benefit (Expense) -4.9 -7.2 -4.9 -4.6 -6.1 -6.7 -0.2 18.4 Total Adjustments 0.4 0.4 -3.4 1.3 0.3 0.7 -16.9 -49.6 Adjustment 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 Gains on Trading Securities -7.5 -37.0 9.2 3.9 7.9 5.9 12.9 6.2 Gains on Investments -18.3 -44.9 -7.6 -0.9 -2.7 -2.6 -5.4 -2.3 Other Gains -0.1 3.1 -0.5 -3.9 -1.9 0.4 -0.2 0.2 Recoveries (Impairments) -6.1 -1.8 -1.8 -5.5 -2.9 -5.6 -1.2 -1.0 Provisions for Credit Losses -28.0 -34.8 -42.9 -39.3 -41.5 -30.3 -28.3 -18.0 Income Tax Benefit (Expense) -18.5 22.1 -0.4 -1.0 0.4 5.5 -3.1 -1.5 Total Adjustments -78.4 -93.4 -43.9 -46.7 -40.8 -26.6 -25.4 -16.4 

Source: Author’s computations based on SEC data.Note: “Other Gains” includes extraordinary items, discontinued operations, and minority interests.
Table 3: Adjustments to SEC Data for NAICS 522110, 524126 (billions USD) 

Adjustment 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 Gains on Trading Securities 6.1 4.8 6.2 6.4 7.6 8.2 -1.2 -8.9 Gains on Investments 1.3 1.9 2.2 2.3 1.7 1.5 -1.6 -22.0 Other Gains 0.5 0.5 1.8 1.7 0.8 0.7 -0.1 0.2 Recoveries (Impairments) -0.3 -0.1 -0.4 -0.4 -0.7 -0.8 -1.6 -6.5 Provisions for Credit Losses -3.2 -2.8 -3.5 -5.1 -4.2 -5.8 -8.4 -15.1 Income Tax Benefit (Expense) -11.1 -12.0 -12.2 -10.7 -12.1 -12.2 -7.1 8.1 Total Adjustments -6.6 -7.6 -5.9 -5.9 -6.9 -8.3 -20.0 -44.1 Adjustment 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 Gains on Trading Securities -7.1 -19.1 7.5 8.9 9.1 3.8 11.5 1.2 Gains on Investments -32.3 -44.7 3.5 2.8 -6.0 2.8 -3.4 6.5 Other Gains -3.2 -11.8 3.2 1.9 0.1 -2.3 1.7 -1.4 Recoveries (Impairments) -22.2 -8.2 -5.3 -2.8 -2.3 -1.8 -1.5 0.0 Provisions for Credit Losses -25.5 -37.4 -32.1 -32.6 -32.3 -29.7 -26.7 -19.8 Income Tax Benefit (Expense) 9.9 4.4 -3.1 -2.8 1.0 -0.2 -3.8 -6.2 Total Adjustments -80.3 -116.8 -26.3 -24.6 -30.4 -27.4 -22.1 -19.7 

Source: Author’s computations based on SEC data.Note: “Other Gains” includes extraordinary items, discontinued operations, and minority interests.
Table 4: Adjustments to FDIC Data for NAICS 5221 and ISO Data for NAICS 524126 (billions USD) 

Adjustment 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 FDIC Data 

Gains on Trading Securities 5.7 4.8 4.6 4.1 7.1 6.3 2.7 -10.7 

Gains on Investments -0.2 -0.5 -0.5 -0.2 0.4 -0.2 0.2 -1.2 

Other Gains 0.2 0.2 0.1 2.1 -0.7 -0.2 -1.0 0.2 

Recoveries (Impairments) -0.3 0.0 0.0 0.0 0.0 0.0 0.0 -1.8 

Provisions for Credit Losses -5.3 -5.6 -6.5 -8.2 -7.9 -9.8 -13.1 -26.6 

Income Tax Expense -15.0 -16.4 -15.4 -12.8 -14.8 -15.4 -12.9 -0.4 

Total Adjustments -15.0 -17.6 -17.7 -14.9 -15.9 -19.3 -24.2 -40.4 

ISO Data 

Total Adjustments -1.5 -5.0 -1.3 -1.5 -1.3 -2.3 -1.3 -1.9 

Adjustment 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 

FDIC Data 

Gains on Trading Securities 5.8 -9.3 10.2 5.5 5.7 1.9 8.3 6.7 

Gains on Investments -6.6 -8.1 1.5 -0.9 -3.8 0.6 1.4 2.1 

Other Gains 1.1 4.7 0.0 -3.7 0.0 -0.2 0.0 -0.2 Recoveries (Impairments) -2.2 -20.4 -16.5 -9.7 -1.7 -2.9 -0.1 -0.4 Provisions for Credit Losses -41.4 -60.3 -55.2 -62.1 -57.3 -58.5 -48.3 -37.7 Income Tax Expense -1.5 12.8 -4.0 0.1 0.9 -0.3 -6.2 -8.9 

Total Adjustments -44.8 -80.6 -64.0 -70.8 -56.2 -59.3 -45.1 -38.5 

ISO Data 

Total Adjustments -11.5 -4.3 -3.3 -4.4 -2.6 -0.2 -2.6 -6.4 

Source: Author’s computations based on FDIC data.Note: “Other Gains” includes extraordinary items, discontinued operations, and minority interests. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 5: Income Statements from SEC Data for NAICS 523 (billions USD) 

Consolidated 2006 2007 2008 2009 2010 

Revenues: 

Investment Banking 15.0 19.5 13.0 15.4 15.2 

Trading and Investing 47.8 21.9 -27.9 43.8 48.2 

Service Fees and Commissions 26.3 30.3 31.7 26.2 27.5 

Other 0.5 1.2 6.1 0.8 1.2 

Total Non-Interest Revenues 89.7 72.9 22.9 86.2 92.2 

Interest and Dividends Income 117.8 163.0 109.7 37.1 28.9 

Interest Expense 108.2 150.7 98.2 25.3 22.8 

Net Interest Income 9.6 12.3 11.5 11.8 6.1 

Net Revenues 99.3 85.2 34.4 98.1 98.3 

Non-Interest Expenses: 

Compensation and Benefits 47.3 52.6 38.0 44.0 46.8 

Occupancy 2.8 3.2 3.6 3.8 4.0 

Brokerage, Clearing, and Exchange Fees 4.4 5.8 6.1 4.6 4.7 

Communication and Technology 3.5 3.9 4.2 4.1 4.4 

Marketing and Business Development 1.8 2.2 1.9 1.2 1.5 

Professional Services 3.3 3.9 3.7 3.1 3.7 

Other 4.8 5.4 14.1 8.6 10.1 

Total Non-Interest Expenses 67.8 77.0 71.6 69.4 75.2 

Income before Income Taxes 31.5 8.2 -37.2 28.7 23.0 

Trading and Investing Segments 

Net Revenues 65.5 44.7 -0.8 47.2 43.1 

Total Non-Interest Expenses 41.5 47.0 40.3 28.8 29.4 

Income before Income Taxes 24.0 -2.3 -41.0 18.3 13.6 

Investment Banking Segments 

Net Revenues 33.7 40.6 35.1 50.9 55.2 

Total Non-Interest Expenses 26.3 30.0 31.3 40.5 45.8 

Income before Income Taxes 7.4 10.5 3.8 10.4 9.4 

Source: Author’s computations based on SEC data. 

25
 

Table 6: Alternative Presentation of U.S. Corporate Profits for the Financial Industries 

Line Item Estimate 

Corporate profits with IVA and CCAdj before taxes, including holding gains 

Less: Adjustment for holding gains coincidental to production 

Equals: Corporate profits, including holding gains generated by production 

Less: Adjustment for holding gains generated by production 

Equals: Corporate profits, excluding holding gains 

Less: Taxes on corporate income 

Equals: Corporate profits after taxes 

Net dividends 

Undistributed corporate profits 

26