RSM428H1 Lecture Notes - Lecture 2: Income Statement, Balance Sheet, Deferred Tax
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Balance sheet is the most important statement for banks (not income statement) Because bank revenues are very stable typically not volatile. Assets: what you have invested in (what you own) Lia(cid:271)ilities a(cid:374)d sha(cid:396)eholde(cid:396)s" e(cid:395)uity: ho(cid:449) you fi(cid:374)a(cid:374)(cid:272)e you(cid:396) i(cid:374)(cid:448)est(cid:373)e(cid:374)ts (cid:894)eithe(cid:396) (cid:271)y usi(cid:374)g you(cid:396) o(cid:449)(cid:374) (cid:373)o(cid:374)ey o(cid:396) othe(cid:396) people"s (cid:373)o(cid:374)ey(cid:895) Banks that have deposits survive, while non-deposit banks tend not to survive. Takes a lot for someone to take all their money out of a bank and move it. This is why they can be highly levered. Loan loss provisions [bad debt expense] are the largest accruals (estimates) a bank has. Fiduciary activities are activities by the bank of behalf of someone else (i. e. , customers) We do(cid:374)"t (cid:396)eally (cid:272)a(cid:396)e a(cid:271)out the (cid:272)lassifi(cid:272)atio(cid:374)s of the (cid:272)ash flo(cid:449)s. We just care about the size and persistence of cash flows. This state(cid:373)e(cid:374)t is usually the least i(cid:373)po(cid:396)ta(cid:374)t (cid:894)(cid:271)ut depe(cid:374)ds o(cid:374) (cid:449)hat you"(cid:396)e looki(cid:374)g fo(cid:396)(cid:895)
