Word: cash
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...September, 2008. Hong Kong's foreign reserves have shot up by nearly 40% over the same period. Economists point out that this new pile-up of dollars will do little to reerse a dangerous pattern of global savings and spending, wherein Asians control much of the world's cash and allow Americnas to recklessly spend...
...Tuesday, the cash-depleted FDIC hatched a plan to require banks to prepay three years of quarterly fees. The FDIC expects to quickly generate $45 billion in cash, an amount it normally would've had to wait years to get its hands on. But in a quirk of accounting rules, the banks won't have to expense the upfront payments this year, even though they will be handing over the cash in the next few months - in amounts that could run into the billions of dollars for some banks. The FDIC says the move will solve its liquidity problems...
...banking system? It's all thanks to an accounting quirk that allows companies to spend money on something but not actually tell their shareholders about the cost until the asset is gone. For you and me, it would be like shoplifting at the supermarket and then dropping off cash every time you decided to eat something. A can of beans might not cost you anything for years. The rule is supposed to match the revenue generated by the stuff a company buys with its costs, and it is called depreciation. But to anyone other than a CPA, it looks like...
...believe they will owe the agency through the end of 2012. But even though the banks will make those payments this year, they won't show up on 2009 income statements. Instead, each bank will add an asset, a big one, to its balance sheet, right below where the cash they just handed over to the FDIC used to be. It will be called something like prepaid FDIC premiums. The asset will shrink each quarter by the amount each bank normally would have paid the FDIC. As the bank shrinks the asset, it will book the normal cost it would...
...case of big banks like Bank of America or Citigroup, the upfront payments could run to a few billions. But the FDIC and analysts say banks will be more than able to cover it. Cash flow is not their problem. Capital is. And because the prepayments won't hit earnings, at least not initially, those capital ratios we have been worried about to show if banks are solvent won't change. Banks, all too familiar with accounting tricks, seem overjoyed by the FDIC's solution...