Payables
- 02:04
Understand how bank payables are accounted for and their role in a bank's operations
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Transcript
We're looking at the liabilities and shareholder's equity section of the Government's Act balance sheet here. And we're going to take a look at a couple of line items, specifically the payable line items. We've got payables to broker dealers and clearing organizations and payables to customers and counterparties. You may also notice that if you look on the other side of the balance sheet, on the asset side, there's some very, very similar receivable lines, and these are really kind of the other side of these transactions to other counterparties. Now, notice that the payables to brokers, dealers, and clearing organizations is pretty small. That's 4.3 billion. That's typically part of the kind of daily market-making activities of the firm. The customers and counterparties line is significant. It's 184 billion. So let's take a little bit more detail on that. So in terms of what this is, this is related primarily to the firm's prime brokerage activities. So this will be transactions to hedge funds and other active market participants. It goes on to say they are accounted for a cost plus accrued interest, which generally approximates fair value. And this is probably because these line items are really short-term. So the avatars cost method versus fair value is really insignificant because of the short-term nature of these items. There is still an impact on the income statement but actually, it's very, very small. It tells us in the notes here that the interest expense on credit customer balances is included in other interest expense. And you can see other interest expense, it's actually shown as a negative number. So that's actually net interest income. And that's partly because the interest expense on the payables to customers and counterparties is outweighed by these rebates received that they're talking about. So the impact of this, again, reinforces that the payables to customers and counterparties, although they're a big number, are very short-term, so the actual interest on them is pretty small.