Bank Balance Sheet Analysis

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Differences of Balance Sheet of a Bank and a Typical Company A balance sheet is generally defined as “a financial statement that takes a snapshot of what a company owns (assets) and owes (liabilities) at a given moment” (Wright and Quadrini (2009), p. 184). The basic accounting concept where “the summation of assets should be equal to liabilities and equity” is used in the banking industry as well, as nonfinancial companies. However, a bank’s balance sheet is different with a nonfinancial company’s balance sheet in so many respects. WallStreetMojo (2017), for instance, listed nine areas of differences, such as definition, objective, scope, equation, complexity, time consumption, key concepts, mentionable documents, and type of balance. Accordingly,…show more content…
Liabilities, on the other hand, has deposits, borrowings, and shareholder’s equity. Contrary to the notion that banks live on deposits of its savers, it is actually the loan or credit operations that sustains them. In fact, deposits are a liability while loans are an asset of a bank. Thus, the biggest portfolio of banks is loans because it is their main stream of income. “Banks (aka depository institutions) turn short-term deposits into long-term loans. In other words, they borrow short and lend long” (Wright and Quadrini, p. 190). It is not surprising, therefore, that in the balance sheet of XY Bank, more than half or 64% of its assets is loans. On the liability side, deposits are the biggest liability of the bank at 61%. This is because the bank does not own the deposits but owe them to its savers. In essence, the money a client deposits to the bank is the source of fund for the bank’s income-generating activity. Therefore, the bank borrows money from its customers disguised as…show more content…
Banks do not maintain huge physical cash because it is idle and it is generating expense rather than income. What banks do is they invest the cash to several markets like financial, real estate, lending in order to mitigate risk (from theft and robbery), generate income, cut physical cash management-related expenses, etc. Banks maintain cash only for projected withdrawals of savers and operational expenses. References: Wright, R.E. & Quadrini, V. (2009). Money and Banking. Saylor Foundation. Licensed under Creative Commons Attribution-NonCommercial-ShareAlikeCC BY-NC-SA 3.0 license. Bank Balance Sheet vs Company Balance Sheet | Top 9 Differences. (2017, September 25). Retrieved February 28, 2018, from D. (2017, February 11). Difference Between Bank Balance Sheet and Company Balance Sheet. Retrieved February 28, 2018, from

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