Bank shouldn't inheret the balance sheet of aqcuired bank. #73
Loading…
Reference in a new issue
No description provided.
Delete branch "%!s()"
Deleting a branch is permanent. Although the deleted branch may continue to exist for a short time before it actually gets removed, it CANNOT be undone in most cases. Continue?
Given the nature of accounting and how aqcuisition work in this game, technically the balance sheet should be recalculated from the perspective of the acquiring bank only. for example, unless you can give me a good reason, there should be no reason a bank should inherent the loan write offs loss of the acquired bank when they received their entire position for like a $1.
Does what I am saying makes sense?
Yes — it makes sense, and you've found a real purchase-accounting bug.
What the engine does today: the acquired loans transfer at their book value, dead ones included. A loan that died before the acquisition still carries its remaining principal on the dead bank's books, and the acquirer keeps amortizing that stale value as write-offs on ITS income statement for turns after the acquisition. So you pay $1 and then watch "Loan write-offs" bleed through your reports for loans that were already dead when they arrived. That is the dead bank's deferred loss, not yours.
What purchase accounting says (your "recalculated from the acquiring bank's perspective"): the acquired balance sheet is re-measured at acquisition. A dead loan with zero recovery is worth zero — the acquirer should get the live position only, and the dead book's remaining value should be absorbed by the corpse. The bargain purchase gain should be computed on that re-measured net, not on the stale book.
Important nuance so the fix stays honest: the TOTAL economics don't change — the dead loans' remaining value sits in the insolvent bank's equity, so re-measuring drops the same amount from the bargain that the future write-offs would have bled. The difference is that the books become truthful: the acquirer books the real net gain once, at acquisition, and never inherits a foreign loss stream. (That's why the fix must adjust BOTH the transferred loans and the failedNet/bargain together, or the accounting identity breaks.)
I'll implement exactly that: dead loans with zero recovery stay with the corpse; the bargain reflects the re-measured net; a regression test pins the identity and asserts no inherited write-offs. Commenting with the diff + PR.
Yes, it made complete sense — and it's fixed. PR: #74. Acquired dead loans (zero recovery) stay with the corpse and the bargain is computed on the re-measured net, so no inherited write-offs ever hit the acquirer's income statement. Total economics unchanged; books truthful.
Shipped via PR #74: acquisition re-measures the books — dead loans stay with the corpse, the bargain is computed on the live position, and the acquirer never inherits the dead bank's write-offs. Closing.