Assets and liabilities can be classified depending on their length and other factors. Current assets are the types of assets that are expected to bring value within the current period, which is typically a one-year period. A bank might have current assets, such as cash reserves and consumer loans. A bank that lends a consumer loan, such as an automobile loan, expects these payments within the specified terms of the loan. The payments expected in the current period are current assets. In the same way, current liabilities are the liabilities that need to be paid out within the current period. For example, utility bills or rent for the bank’s building would be considered current liabilities.
A balance sheet is an accounting tool that lists assets and liabilities. An asset is something of value that is owned and can be used to produce something. For example, the cash you own can be used to pay your tuition. A home provides shelter and can be rented out to generate income. A liability is a debt or something you owe. Many people borrow money to buy homes. In this case, the home is the asset, but the mortgage (i.e. the loan obtained to purchase the home) is the liability. The net worth is the asset value minus how much is owed (the liability). A bank’s balance sheet operates in much the same way. A bank’s net worth is also referred to as bank capital. A bank has assets such as cash held in its vaults and monies that the bank holds at the Federal Reserve bank (called “reserves”), loans that are made to customers, and bonds.
Noncurrent assets are assets that won’t be liquidated within the current period, meaning they bring value but can’t be cashed out within the same period. Land and equipment that can’t be sold quickly would be considered noncurrent assets. Noncurrent liabilities, or long-term liabilities, are the things owed but don’t need to be paid right away. For example, if the bank borrows funds from another bank, the interest on this loan may not need to be paid right away.
Contingent assets and contingent liabilities are valued based on potential circumstances and factors. Contingent assets are things that might bring value, just as contingent liabilities are things that might be owed, based on factors such as the economy.
Examples of Bank Liabilities and Assets
Bank assets are the things that essentially bring value to the bank. The assets of a bank will depend on the type of bank and the types of accounts and services offered. Some common examples include:
- General assets: Cash reserves, interest, and general fees.
- Physical assets: Building, land, and equipment.
- Loans: Interest from consumer loans, such as auto loans, home loans, and personal loans.
- Investments: Securities and other investment-related assets.
Bank liabilities are the things the bank owes to individuals or other businesses. The liabilities of a business may depend on the types of accounts and services offered. The common list of liabilities of a bank include:
- Interest payments to other banks.
- Mortgage payments for building.
- Savings account interest due to customers.
- Stock distributions.
- Any other debts the bank owes.