In a bank balance sheet, which of the following describes typical assets and liabilities?

• A. Assets: loans and securities; Liabilities: deposits and borrowings; equity is residual
• B. Assets: deposits; Liabilities: loans
• C. Assets: equity; Liabilities: cash
• D. Assets: currency in circulation; Liabilities: reserves

Answer: (A)

Bank balance sheets show assets financed by liabilities and equity, with equity serving as the residual after liabilities are accounted for. In practice, banks hold loans and securities as assets, while their obligations to customers and other lenders—deposits and borrowings—appear as liabilities. The owners’ claim, or equity, is what remains. This is why the best-fit description lists assets as loans and securities, liabilities as deposits and borrowings, and equity as the residual.

Deposits are not assets; they are obligations of the bank to customers. Equities are not assets either, they are the owners’ claim. Currency in circulation relates to the central bank and public sector, not a typical bank’s asset structure, while reserves are assets for the bank.