Bank Balance Sheet Structure

Question 1

ASSETS

Answer 1

Loans, investment

Question 2

Non-earning assets

Answer 2

(i) Buildings, (ii) equipment, (iii) interest receivable, (iv) goodwill and intangible assets

Question 3

Do all financial assets have the same risk profile?

Answer 3

No, it depends on: (1) credit quality, (2) if there is collateral, and or (3) liquidity

Question 4

LIABILITY

Answer 4

deposits (primary source of funding for most FI), borrowings (bank pays interest top depositors or lenders).

Question 5

Deposit Funding

Answer 5

• Generally main source of funding
• Substantial component of money supply
• Often lowest cost source of funding
• Requires branch and digital infrastructure (and investment) to serve customers
• Size (millions of customers) and diversity confer some stability

Question 6

Borrowed Funds

Answer 6

• Supplemental but important source of funding. (i.e., especially if loan growth exceeds deposit growth)
• Usually pays a higher interest rate than deposit gathering
• Does not require bank branch network
• Large amounts can be accessed in a short period of time
• Faster than gathering deposits [also longer term, whereas deposits are generally short term in nature].
• Relatively expensive