On a bank's balance sheet, which item is a liability?

• A. Deposits
• B. Loans
• C. Securities
• D. Cash and reserves

Answer: (A)

Deposits are a liability because when customers put money into a bank, the bank has an obligation to return those funds on demand or at an agreed time. The bank owes the deposited money to customers, so it counts as a source of funds and sits on the liability side of the balance sheet. The bank uses these funds to finance assets, such as loans and securities.

In contrast, loans are assets—the bank has lent money and expects to be repaid with interest. Securities are assets—the bank owns them and earns returns from them. Cash and reserves are assets—the bank owns these cash resources. So among the options, deposits are the liability.