Marketable securities held by a bank in its portfolio of balance sheet assets. Investment securities, along with bank loans, are the principal source of bank earnings, and generally serve two key functions: as a source of bank Liquidity or funding to meet loan demand or customers' needs for cash and as an additional source of earnings from the capital gains realized when portfolio securities are sold. Bank investment grade securities are acceptable collateral in meeting Pledging Requirements for holding federal government deposits, and also deposits of state and local governments. Bank investment securities are carried at amortized Book Value or original purchase cost less amortization or accretion to par value.
Eligible securities that a bank legally can hold as investments include U.S. Treasury securities, federal agency obligations, debt securities of state and local governments, stock in Federal Reserve banks, plus certain other types of investment grade debt (but not corporate securities). The Glass-Steagall Act prohibits national banks and state member banks from investing in equity securities of nonfinancial corporations. As a general rule, banks can own stock in bankers' banks, Edge Act corporations, foreign banks and other companies offering bank-like services, and can hold other investment grade debt so long as securities owned do not exceed 10% of a bank's capital and surplus.
Separated from the investment securities portfolio are Trading Account Assets, and other securities a bank is eligible to purchase in securities underwriting for resale to the public or to other financial institutions, and also securities held under repurchase agreements. Assets held in the trading portfolio are marked to market daily. See also Barbell Portfolio; Bond Swap; Laddered Portfolio; Mark to Market.
