A bank's balance sheet shows that its primary assets are:

Question

Accepted Answer

Loans and securities investments. A bank's primary assets are loans (to individuals, businesses, and governments) and securities investments (primarily government bonds and other fixed-income securities). These assets generate interest income, which is the bank's main source of revenue. Loans typically represent the largest category of bank assets, followed by investment securities, cash reserves, and other assets.

Deposits from customers are the bank's primary liabilities, not assets. Deposits represent money the bank owes to its depositors and appear on the liability side of the balance sheet. Stockholders' equity represents the owners' residual interest in the bank after subtracting liabilities from assets - it appears on the liability/equity side of the balance sheet. Operating expenses are income statement items (costs of running the bank) that do not appear as balance sheet assets.

Understanding a bank's balance sheet is essential for the DSST Money and Banking exam. Students should know that a bank's assets (loans, securities, reserves) are funded by its liabilities (deposits, borrowed funds) and equity (stockholders' investment plus retained earnings). The key to bank profitability is the net interest margin - the spread between the interest earned on assets and the interest paid on liabilities.

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