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Real Economy

Financial intermediation can be classified as Real Economy (as opposed to Financial Economy) if it is directly linked to a Real Economy Asset or Activity. This means that the intermediation is aimed at directly supporting the production of goods and services, as opposed to focusing primarily on buying and selling in the financial markets. As indicated below RE intermediation is no more than one degree away from a real asset or activity.

Examples of Real Economy intermediation include direct financing to manufacturers or service companies, foreign exchange forward contracts for importers or exporters of goods and services, derivative contracts directly related to the activities of enterprises, direct financing to individuals for purchase of asset, among others. Assessment on the usage of intermediation especially for personal financing shall determine the connection to Real Economy activities. Accordingly, debt consolidation, share trading/margin financing, among others, shall not be classified as Real Economy intermediation. Assets held for trading as opposed to maturity as well as secondary market purchases will generally be considered non-Real Economy. This exclusion list may be modified based on experience or following annual checks to ensure previous classifications remain valid. Examples of RE intermediation include:

The real economy relates to economic activities that generate goods and services as opposed to a financial economy that is concerned exclusively with activities in the financial markets. Nearly all elements of a bank are financial instruments, only those instruments that are one degree from the real economy are considered to be real economy for purposes of the Scorecard. Good examples of the real economy can be found in the stories of GABV members.

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