ECONOMICS

Detailed explanation-1: -Off-balance-sheet items are contingent assets or liabilities such as unused commitments, letters of credit, and derivatives. These items may expose institutions to credit risk, liquidity risk, or counterparty risk, which is not reflected on the sector’s balance sheet reported on table L.

Detailed explanation-2: -Off-balance sheet financing is an accounting practice where companies keep certain assets and liabilities from being reported on balance sheets. This practice helps companies keep debt-to-equity and leverage ratios low, resulting in cheaper borrowing and the prevention of covenants from being breached.

Detailed explanation-3: -Methods of off-balance-sheet financing include selling receivables under certain conditions, providing guarantees or letters of credit, participating in joint ventures, research and development partnerships and operating leases.

Detailed explanation-4: -Off-balance sheet items are typically those not owned by or are a direct obligation of the company. For example, when loans are securitized and sold off as investments, the secured debt is often kept off the bank’s books.