Flow of Funds Accounts

Flow of funds accounts are the financial side of a country's national accounts. They record, sector by sector, how much each part of the economy saves and invests, how it lends or borrows the difference, and in which financial instruments: currency and deposits, loans, debt securities, shares, insurance and pension claims. Most also include sectoral balance sheets, showing the stock of financial assets and liabilities each sector holds. Statisticians often call them the financial accounts or sectoral accounts.

This entry covers the economics and national accounts meaning. In payments, the phrase describes something different: the path money takes from payer to payee through banks and processors, covered in the separate entry Flow of Funds (FoF). Flow of funds accounts in the economic sense are compiled to the United Nations System of National Accounts (SNA), in the 2008 SNA and now the 2025 SNA, usually by a central bank because it already collects the financial data.

Picture a village where some families spend less than they earn and put the rest in the bank, while a shopkeeper borrows to build an extension and the village council borrows to repair the well. Over a year, the savers' money ends up funding the builders and the council, with the bank in the middle.

Flow of funds accounts draw that map for a whole country. For each group (households, companies, banks, government, and foreigners) they show who had spare money, who needed it, and whether it moved as bank deposits, loans, bonds or shares. If the whole village spends more than it earns, the gap must have been filled by lenders from outside.

The economist Morris Copeland developed the framework in his 1952 study of "moneyflows" in the United States for the National Bureau of Economic Research. The Federal Reserve began publishing flow of funds statistics in the 1950s; its December 1955 release covered 1939 to 1953. The Fed's Z.1 release, long known as the Flow of Funds Accounts of the United States, is now titled Financial Accounts of the United States and appears four times a year, about ten weeks after each quarter ends. Its table of household and non-profit net worth is one of the most quoted series in US economic commentary. The SNA later absorbed the same ideas into its standard sequence of accounts.

The SNA divides an economy into institutional sectors: non-financial corporations, financial corporations, general government, households, non-profit institutions serving households, and the rest of the world. For each sector the key identity is:

• $S_j$ is the saving of sector $j$: its disposable income minus its consumption.
• $I_j$ is its capital investment, mainly gross fixed capital formation (GFCF) plus changes in inventories.
• $\Delta A_j$ is its net acquisition of financial assets, such as new bank deposits, bonds bought and loans made.
• $\Delta L_j$ is its net incurrence of liabilities, such as new loans taken out or bonds issued.

The left side, from the capital account, is the sector's net lending (if positive) or net borrowing (if negative). The right side, from the financial account, must equal it, apart from a statistical discrepancy.

Suppose households save 300 and invest 100 in new homes, so they lend 200. Companies save 150 and invest 250, so they borrow 100. Government saves −50 (it runs a current deficit) and invests 100, so it borrows 150. The domestic sectors together borrow 50, so the rest of the world must have lent 50, which matches a current account deficit of 50 in the balance of payments. Every loan is someone else's asset, so the columns always balance.

• Financial stability. Sector balance sheets reveal build-ups of household mortgage debt, corporate leverage or government reliance on short-term funding, the kind of imbalances behind past crises. Central banks use them in financial stability reports.
• Monetary policy. They show how savings move through the banking system, pension funds and money market funds, which shapes how interest-rate changes under monetary policy reach borrowers.
• Non-bank finance. Because they cover every type of financial corporation, they help measure non-bank financial intermediation (NBFI), the broader activity sometimes called shadow banking.
• Government financing. They show who holds public debt and how government borrowing is funded at home and abroad.

The State Bank of Pakistan (SBP) compiles the Flow of Funds Accounts of Pakistan, published annually by its Data Services and Innovations Department. The FY2020-21 edition says the data were transformed into sectoral balance sheets following the 2008 SNA. Its sources include SBP's monetary and financial statistics for banks, microfinance banks and development finance institutions, audited accounts of non-financial corporations, Ministry of Finance and Pakistan Bureau of Statistics data for general government, and SBP's balance of payments statistics for the rest of the world.

According to that edition, Pakistan as a whole was a net borrower of Rs561.1 billion in FY2020-21. Households and non-profit institutions, financial corporations and the rest of the world were in surplus, while general government and non-financial corporations were in deficit. Households channelled about Rs1,909.5 billion of their saving into currency and deposits. Pakistan's banks in turn hold large amounts of government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs), which is one route by which household saving ends up financing the government's deficit. The accounts complement monetary measures such as broad money (M2) and the national accounts aggregates gross domestic product (GDP) and gross national income (GNI).

• Federal Reserve Board: Financial Accounts of the United States (Z.1)
• State Bank of Pakistan: Flow of Funds Accounts of Pakistan 2020-21
• United Nations Statistics Division: System of National Accounts 2008