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L2. The Financial Statements of Banking and their Principal Competitors -…
L2. The Financial Statements of Banking and their Principal Competitors
Balance Sheet
C + S + L + MA = D + NDB + EC
C = Cash Assets
S = Security Holdings
D = Deposits
NDB = Nondeposit Borrowings
L = Loans
MA = Miscellaneous Assets
EC = Equity Capital =Net Worth or Capital Accounts
Off-Balance-Sheet Items
Types
• Unused commitments
• Standby credit agreements
• Derivative contracts: Futures Contracts, Options, Swaps
Size
• 13x the volume of largest banks’ balance sheet assets
• Main exposure is gain and losses, not face value of contracts.
• Expose the bank to added risk, that is not clearly
translated in the Balance Sheet
• These items have grown a lot, and their total size
exceeds Total Asset of a bank.
Strict Regulation as to how they are recorded: Marked to market
Report of Income
Net Interest Income =
Interest Income – Interest Expenses
Net Noninterest Income =
Noninterest Income – Noninterest Expenses
Income Statement
Interest Income - Interest Expense = NII - PLL + Non Interest income - Non interest expense = Pretax Net Operating Income +/- Sec gains (losses) - Income Taxes = Income Before Extraordinary Items +/- Extraordinary gains (losses) = NI
Sources and Uses of Funds
Source
NI
Noncash Expenses
Decrease in Assets
Increase in
Liabilities
Increase in Capital
Accounts
Use
Net Loss
Dividends
Increase in Assets
Decrease in
Liabilities
Decrease in
Capital Accounts