Off Balance Sheet Activity Conforms Essay

725 Words Sep 18th, 2016 3 Pages
Off-balance-sheet activity conforms to current accounting standards, and does not show up on the current balance sheet of a bank. In recent years, this is becoming more commonplace with banks as they attempt to increase her ability to earn funds and make a profit. This is especially noticeable when banks are trying to attract high quality loan applicants along with depositors that are also of a better size. It is more profitable for a bank to have larger depositors from a servicing aspect (Saunders & Cornett, 2015, p. 352).
Some of the products that are involved with off-balance-sheet activities would include letters of credit as well as the various different types of derivative transactions that are known as futures, swaps, options, and forwards. A letter of credit is a commitment to lend in the future and by nature is similar to an insurance underwriting process that must take place to be able to guarantee the credit of the company (Saunders & Cornett, 2015, p. 352).
Some products are not as common that can show up as an off-balance-sheet activity versus the balance sheet itself. One example of such product would be a banker’s acceptance when a bank participates in funding risk of acceptance created by another bank. Since this is considered a liability that is, only contingent in nature, it would not show up on the balance sheet directly of the bank participating in the funding. This does not apply, when a bank purchases other banker’s acceptances for investment…

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