Statement No. 28
Accounting and Financial Reporting for Securities Lending Transactions
This Statement establishes accounting and financial reporting standards for securities lending transactions. In these transactions, governmental entities transfer their securities to broker-dealers and other entities for collateral-which may be cash, securities, or letters of credit-and simultaneously agree to return the collateral for the same securities in the future.
Governmental entities should report securities lent (the underlying securities) as assets in their balance sheets. Cash received as collateral on securities lending transactions and investments made with that cash should be reported as assets. Securities received as collateral also should be reported as assets if the governmental entity has the ability to pledge or sell them without a borrower default. Liabilities resulting from these transactions should be reported in the balance sheet. Securities lending transactions collateralized by letters of credit or by securities that the governmental entity does not have the ability to pledge or sell unless the borrower defaults should not be reported as assets and liabilities.
The costs of securities lending transactions, such as borrower rebates (interest costs) and agent fees, should be reported as expenditures or expenses. These costs should not be netted with interest revenue or income from the investment of cash collateral, any other related investments, or loan premiums or fees.
This Statement requires disclosure of the source of legal or contractual authorization for the use of securities lending transactions, any significant violations of those provisions during the period, whether the maturities of the investments made with cash collateral generally match the maturities of the securities loans, and summary information about the credit risk associated with the transactions at the balance sheet date. Disclosure of general information about the transactions also is required, such as the types of securities lent, the types of collateral received, whether the government has the ability to pledge or sell collateral securities without a borrower default, the amount by which the value of the collateral provided is required to exceed the value of the underlying securities, any restrictions on the amount of the loans that can be made, and any loss indemnification provided to the entity by its securities lending agents. Disclosure also is required of the carrying amount and market or fair values of underlying securities at the balance sheet date. This Statement also provides guidance for classifying securities lending collateral and the underlying securities in the categories of custodial credit risk required by GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements.
The provisions of this Statement are effective for financial statements for periods beginning after December 15, 1995. Earlier application is encouraged.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments, public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 3 discusses the applicability of this Statement.