It stands for off-balance sheet instrument; a contract which is mainly based on a notional principal amount and represents a contingent liability on an institution. It is used to change the risk structure of an entity without being shown among balance sheet items (assets and liabilities). The most common off-balance sheet (Off-BS) instruments are swaps, forward rate agreements, securitized loans, operating leases, etc. In such items, the financial institution doesn’t have legal claim or responsibility for.
Financial institutions such as banks, brokerage firms, insurance companies, and so on, usually report off-balance sheet items in footnotes to their balance sheets, or may include such items in “assets under management” category, comprising both on and off-balance sheet figures.
