Bank of Montreal 2008 Annual Report Download - page 134

Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
130 | BMO Financial Group 191st Annual Report 2008
Note 15: Deposits
Payable on demand Payable Payable on
(Canadian $ in millions) Interest bearing Non-interest bearing after notice a fixed date Total
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Deposits by:
Banks $ 823 $ 349 $365$ 298 $ 2,619 $ 1,001 $ 26,539 $ 32,452 $ 30,346 $ 34,100
Businesses and governments 8,101 7,155 20,777 9,719 20,376 19,783 86,857 85,091 136,111 121,748
Individuals 4,705 3,405 6,802 5,824 34,880 31,114 44,826 35,859 91,213 76,202
Total $ 13,629 $ 10,909 $ 27,944 $ 15,841 $ 57,875 $ 51,898 $ 158,222 $ 153,402 $ 257,670 $ 232,050
Booked in:
Canada $ 12,864 $ 10,346 $ 15,427 $ 13,762 $ 38,564 $ 36,579 $ 91,439 $ 81,690 $ 158,294 $ 142,377
United States 303 174 10,696 2,078 18,879 14,750 50,316 41,824 80,194 58,826
Other countries 462 389 1,821 1432 569 16,467 29,888 19,182 30,847
Total $ 13,629 $ 10,909 $ 27,944 $ 15,841 $ 57,875 $ 51,898 $ 158,222 $ 153,402 $ 257,670 $ 232,050
Included in deposits as at October 31, 2008 and 2007 are $112,614 million and $94,911 million, respectively, of deposits denominated in U.S. dollars, and $7,763 million and $11,778 million, respectively,
of deposits denominated in other foreign currencies.
Change in Accounting Policy
On November 1, 2006, we adopted the CICA’s new accounting require-
ments which allow management to elect to measure financial instruments
that would not otherwise be accounted for at fair value as trading
instruments, with changes in fair value recorded in income provided
they meet certain criteria. Financial instruments must have been
designated on November 1, 2006, when the new standard was adopted,
or when new financial instruments were acquired, and the designation
is irrevocable.
We issue structured notes that include embedded interest rate or
equity options. We enter into derivatives which manage our exposure to
changes in the structured note fair value caused by changes in interest
rates or equity prices. The structured notes are designated as trading
under the fair value option, which better aligns the accounting result
with the way the portfolio is managed. These notes are classified as
deposits. The fair value and amount due at contractual maturity of
these notes as at October 31, 2008 were $1,070 million and $1,197 million,
respectively ($762 million and $791 million, respectively, in 2007).
The impact of recording these notes as trading was an increase in non-
interest revenue, trading revenues (losses) of $84 million for the year
ended October 31, 2008 ($8 million in 2007). The portion of the change
related to the embedded interest rate or equity options was offset by
a change in the fair value of the derivatives. The portion of the change
in fair value attributable to changes in credit risk was an unrealized
gain of $108 million both for the year ended October 31, 2008 and since
inception. We isolate the impact of changes in our credit risk by deter-
mining both the change in fair value due to changes in risk-free interest
rates and the change due to market interest rates, which includes a
premium for our credit. The difference between these two changes in
fair value represents the change in fair value due solely to changes
in our credit risk.
When we initially elected the fair value option for our structured
notes on November 1, 2006, we remeasured the portfolio of structured
notes at fair value. The net unrealized loss of less than $1 million was
recorded in opening retained earnings.
Deposits
Deposits payable on demand are comprised primarily of our
customers’ chequing accounts, some of which we pay interest on.
Our customers need not notify us prior to withdrawing money from
their chequing accounts.
Deposits payable after notice are comprised primarily of our
customers’ savings accounts, on which we pay interest.
Deposits payable on a fixed date are comprised of:
•Various investment instruments purchased by our customers to earn
interest over a fixed period, such as term deposits and guaranteed
investment certificates. The terms of these deposits can vary from
one day to 10 years.
•Federal funds purchased, which are overnight borrowings of other
banks’ excess reserve funds at a United States Federal Reserve Bank.
As at October 31, 2008, we had purchased $2,382 million of federal
funds ($1,937 million in 2007).
•Commercial paper, which totalled $269 million as at October 31, 2008
($685 million in 2007).
Included in our deposits payable on a fixed date as at October 31, 2008
were $132,296 million of individual deposits greater than one hundred
thousand dollars, of which $66,394 million were booked in Canada,
$49,435 million were booked in the United States and $16,467 million
were booked in other countries. We had $132,501 million of such
deposits as at October 31, 2007, of which $61,312 million were booked
in Canada, $41,301 million were booked in the United States and
$29,888 million were booked in other countries.