March 2002
Intermediate to advanced
176 pages
3h 48m
English
book
Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
by Jean Dermine, Youssef F. Bissada
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Bank accounting: Accrual vs. marked-to-market
Bank accountants classify transactions into two categories:
the banking (or accrual) book;
the trading book.
The key accounting characteristic of the banking book is that loans, deposits and bonds (investment portfolio[1]) are recorded at their historical cost (i.e. a loan of 1 million remains recorded at 1 million over the life of the loan). The key consequence for the profit and loss account is that the banking book generates a net interest margin (NIM) which is the difference between the interest received and the interest paid. Since the net interest margin is usually a major component of a bank’s P&L, the impact of interest rate risk on the NIM has to be analysed very carefully.
[1] Bonds are recorded ...
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