Liabilities Flashcards
Deposits
You walk into a bank and deposit money via the ATM. That money goes into your checking account, which is a deposit and the key liability of the bank.
A bank’s business model in a nutshell: get deposits from consumers and businesses, and then use these funds to issue loans at higher interest rates to other consumers and businesses.
Some deposits are interest-bearing (CDs), while others are not (free checking accounts).
Always projected as a % of Gross Loans.
Federal Funds Purchased
Just like Federal Funds Sold, but on the other side of the balance sheet. If a bank falls short of its central reserve requirements, it can purchase additional funds from other banks at the Fed Funds rate.
Increase this to balance the balance sheet if the Liabilities & Shareholders’ Equity side falls below the Assets side.
Commercial Paper
Liquidity management and short-term funding needs; low interest rates. Projected as a % of Gross Loans.
Other Borrowed Funds
Liquidity management and short-term funding needs; low interest rates. Projected as a % of Gross Loans.
Trading Liabilities
Represents a bank’s short positions in equity and debt securities and derivatives. For example, a trader says, “We think Company X’s share price will fall to $10, so we’re going to bet against the stock by shorting it” – the value of that short position shows up under Trading Liabilities.
% of Trading Assets.
Accounts Payable
Same as AP for a normal company; % of Gross Loans.
Interest Payable
Interest that a bank owes on borrowed money; % of Deposits, Borrowings, or Long-Term Debt.
Beneficial Interests
Interest-bearing liabilities issued by VIEs (Variable Interest Entities); these are special entities that allow banks to keep securities such as subprime mortgages off their balance sheets. Hold constant.
Long-Term Debt
Same as LT debt for a normal company – may consist of Senior Notes or Subordinated Notes. Projected as a % of Gross Loans because a bank raises debt in proportion to how much it needs to issue loans.
Preferred Stock
Same as Preferred Stock for a normal company: guaranteed dividends and a higher claim to a bank’s assets than Common Stock.
Often held constant; can also project by adding issuances and subtracting redemptions.
Non-Controlling Interests
Same as Non-Controlling Interests or Minority Interest for a normal company – when a bank owns 50% of another company, this represents the portion they don’t own.
Increase by Earnings from Non-Controlling Interests.
Common Stock
The par value multiplied by all common shares outstanding.
You can do the math to get the precise number here, but most of the time you hold this constant and assume that 100% of the value of new shares shows up under Capital Surplus instead.
Capital Surplus
Otherwise known as APIC (Additional Paid-In Capital), this is exactly the same as for a normal company: add the value of new stock issuances and stock-based compensation.
Retained Earnings
Add Net Income and subtract Dividends. If you add Net Income to Common, only subtract Common Dividends; otherwise subtract Common Dividends and Preferred Dividends.
Accumulated Other Comprehensive Income
The same as for a normal company – any miscellaneous items that don’t show up anywhere else, such as the effect of foreign exchange rate changes, unrealized gains and losses, and so on, go here.
