What is typically the largest liability for a bank?

What is typically the largest liability for a bank?

• A. Bonds payable
• B. Deposits
• C. Accounts payable
• D. Taxes payable

Answer: (B)

Banks fund most of what they lend with the money customers put into their accounts. Those customer balances are liabilities because the bank must return the money when customers demand it or when their deposits reach maturity. Because many people keep checking, savings, and time deposits in a bank, this funding pool becomes the biggest liability on the bank’s balance sheet—much larger than other liabilities like payables or taxes, and usually larger than any wholesale borrowing the bank might use. Deposits are also relatively cheap and stable funding, helped by deposit insurance, which helps keep these balances steady. This is why deposits are the largest liability for a bank.

Banks fund most of what they lend with the money customers put into their accounts. Those customer balances are liabilities because the bank must return the money when customers demand it or when their deposits reach maturity. Because many people keep checking, savings, and time deposits in a bank, this funding pool becomes the biggest liability on the bank’s balance sheet—much larger than other liabilities like payables or taxes, and usually larger than any wholesale borrowing the bank might use. Deposits are also relatively cheap and stable funding, helped by deposit insurance, which helps keep these balances steady. This is why deposits are the largest liability for a bank.