The Balance Sheet 197
(or a deposit^43 ) because the risks and rewards of own-
ership of the securities remain with the original owner
(security provider). Th us, the funds advanced by the
security taker (cash provider) to the security provider
(cash taker) are treated as a loan and the underlying
securities remain on the balance sheet of the security
provider, despite the legal change in ownership.
7.160 Securities lending is an arrangement
whereby a security holder transfers securities to an-
other party (security taker), subject to the stipulation
that the same or similar securities be returned on a
specifi ed date or on demand. As with a securities re-
purchase agreement, the risks and rewards of owner-
ship remain with the original owner. If the security
taker provides cash as collateral, then the arrange-
ment is a repo (see paragraph 7.159). If the security
taker provides noncash collateral, then no stock po-
sition changed. In either case, the securities involved
remain on the balance sheet of the original owner.
7.161 A gold swap involves an exchange of gold
for foreign exchange deposits with an agreement that
the transaction be reversed at an agreed future date at
an agreed gold price. Th e gold taker (cash provider)
should not record the gold on its balance sheet, while
the gold provider (cash taker) should not remove the
gold from its balance sheet. Gold swaps are similar to
securities repurchase agreements, except that the col-
lateral is gold, and should therefore be recorded as a
collateralized loan or deposit. Gold loans occur in the
same form as securities lending and should be treated
in the same way.
7.162 An off -market swap is a swap contract^44 that
has a nonzero value at inception as a result of having
reference rates priced diff erently from current market
values—that is, “off -the-market.” Such a swap results
in a lump sum being paid, usually at inception, by
one party to the other. Th e economic nature of an off -
market swap is equivalent to a combination of bor-
rowing (i.e., the lump sum), in the form of a loan, and
an on-market swap (fi nancial derivative).^45
(^43) Repurchase agreements that are included in the national
defi nition of broad money should be classifi ed as nontransferable
deposits. All other securities repurchase agreements should be
classifi ed under loans.
(^44) A swap contract involves the counterparties exchanging, in
accordance with prearranged terms, cash fl ows based on the
reference prices of the underlying items.
(^45) For more details, see the PSDS Guide, paragraphs 4.127–4.131.
7.163 Loans are recorded at nominal value (i.e., the
amount advanced plus interest accrued and not paid
minus any repayments). Th e use of nominal values is
partly infl uenced by pragmatic concerns about data
availability. In addition, because loans are generally
not intended for trading on the secondary market,
estimating a market price can be subjective. Nomi-
nal value is also useful because it shows actual legal
liability and the starting point of creditor recovery
behavior. In some cases, loans may be traded, oft en
at discount, or a fair value may exist or could be es-
timated. It is recognized that nominal value provides
an incomplete view of the fi nancial position of the
creditor, particularly when the loans are nonperform-
ing. In such cases, information on the nominal value,
as well as the fair value, of nonperforming loan as-
sets should be included as a memorandum item to the
GFS balance sheet—see paragraph 7.262.
Equity and investment fund shares (6205, 6215, 6225, 6305, 6315, 6325)
7.164 Equity and investment fund shares have
the distinguishing feature that the holders own a re-
sidual claim on the assets of the institutional unit that
issued the instrument. Equity represents the owners’
funds in the institutional unit. In contrast to debt, eq-
uity does not generally provide the owner with a right
to a predetermined amount or an amount determined
according to a fi xed formula. Investment fund shares
have a specialized role in fi nancial intermediation as
a kind of collective investment in other assets, and
should be identifi ed separately. When an institutional
unit’s net worth is calculated, equity and investment
fund shares are, by convention, included in total li-
abilities (see paragraphs 7.228–7.233).Equity (62051, 62151, 62251, 63051, 63151, 63251)
7.165 Equity consists of all instruments and re-
cords that acknowledge claims on the residual value
of a corporation or quasi-corporation, aft er the claims
of all creditors have been met. Equity is treated as a
liability of the issuing institutional unit (a public cor-
poration or other government unit).
7.166 Ownership of equity in legal entities is usu-
ally evidenced by shares, stocks, participations, de-
pository receipts, or similar documents. Shares and
stocks have the same meaning. Participating preferred