When you visit these sites, you are agreeing to all of their terms of use, including their privacy and security policies. Bank of America has not been involved in the preparation of the content supplied at the unaffiliated sites and does not guarantee or assume any responsibility for its content. Certain links may direct you away from Bank of America to an unaffiliated site. Bank of America does not assume liability for any loss or damage resulting from anyone's reliance on the information provided. These materials are for informational purposes only. Opinions or ideas expressed are not necessarily those of Bank of America nor do they reflect their views or endorsement. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.Ĭontent contained herein may have been produced by an outside party that is not affiliated with Bank of America or any of its affiliates (Bank of America). Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. On the other hand a negative equity shows that its liabilities are worth more than its assets – in other words, that the bank is insolvent.Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. A positive net equity indicates that a bank’s assets are worth more than its liabilities. These accounts are commonly referred to as savings accounts.Įquity is calculated by subtracting liabilities from assets. In contrast, time deposits have a notice period or a fixed maturity date, so that the money cannot be withdrawn on demand. These accounts are commonly referred to as current accounts (in the UK) or checking accounts (in the USA), or instant access savings accounts. Demand deposits are deposits that can be withdrawn or spent immediately when the customer asks, in other words ‘on demand’ or ‘on sight’ of the customer. ![]() These will generally be individuals, businesses or other organisations.ĭeposits in a bank can be split into two broad groups: demand (or sight) deposits and time (or term) deposits. The bulk of a typical bank’s liabilities are made up of ‘deposits’ which are owed to the ‘depositors’. Therefore the ‘money’ in your bank account does not represent money in the bank’s safe, it simply represents the promise of the bank to repay you – either in cash or as an transfer to another account – when you ask it to. This promise is recorded on the liabilities side of the balance sheet, and is what you see when you check the balance of your bank account. What you receive in return is a promise (an IOU) from the bank to pay you an amount equivalent to the sum deposited. Contrary to the perception of most of the public, when you (as a bank customer) deposit physical cash into a bank it becomes the property (an asset) of the bank, and you lose your legal ownership over it. Liabilities are simply things that the bank owes to other people, organisations or other banks. What about the other half of the balance sheet? This side is called the ‘liabilities’ of the bank. ![]() ![]() This legally binding contract is worth as much as the borrower commits to repay (assuming they will repay), and so can be considered an asset in accounting terms. You may find it counter-intuitive that a loan made by the bank is recorded as an asset after all, once you’ve lent money, you no longer have the money, so how can you record it as an asset? However, when a loan is made, the borrower signs a contract committing to repay the full loan, plus interest. (In fact, if you lend £100 to a friend, your friend’s agreement to repay you can be recorded as an asset on your own personal balance sheet.) Loans made by the bank usually account for the largest portion of a bank’s assets. The assets include everything that the bank owns or is owed, from cash in its vaults, to bank branch buildings in town centres, through to government bonds and various financial products. On one side of the balance sheet are the assets.
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