What assets should a government report in a securities lending transaction?

In a securities lending transaction, it is essential for a government to report both lent securities and collateral securities on its balance sheet. When securities are lent out, they remain an asset of the government; therefore, these lent securities must be reported as part of the government's assets. This recognizes the continuing ownership of the securities, even though they are temporarily out of the government's possession.

Moreover, the collateral securities received in exchange for the lent securities also represent an asset for the government. This collateral often consists of cash or other securities that can be pledged or sold in the event of a default by the borrower. Reporting this collateral is critical as it reflects the financial obligation of the borrower and the protection afforded to the government against potential risks associated with the lending transaction.

By recognizing both the lent securities and the collateral securities, the government provides a complete and transparent view of its financial position related to securities lending activities. Therefore, the correct approach to reporting assets in this context is to include both the lent securities and the collateral.