Commercial banks: balance sheet, Macroeconomics

Commercial Banks: Balance Sheet

The accompaning table gives the balance sheet of a commercial bank in a simplified format. The balance sheet contains particulars of a Bank's current assets and current liabilities. The balance sheet indicates the manner in which the bank has raised funds and invested them in various kinds of assets. The liabilities of the bank are the items which are to be paid by it either to its shareholders or depositors. The assets are those items from which it hopes to get an income and thus includes all the amounts owed by others to the bank.


Liabilities

Assets

1. Share capital

2. Reserve Funds

3. Deposits

  1. Time deposits 

  2. Demand deposits

  3. Savings deposits

4. Borrowings

5. Other items

1. Cash in hand

 

   Cash with Central Bank 

   Cash with other banks

2. Money at call and short notice

3. Bills discounted including treasury bills

4. Investments

5. Advances

6. Other items                          

The liabilities of the bank show how the bank raises its funds. Every bank gets its funds in three ways: share capital, reserve fund and deposits from the general public.

Share capital and reserve fund together constitute the net worth of the company. Share capital is the contribution made by the shareholders and reserve fund is the amount accumulated over years out of undistributed profits. Deposits from the public constitute the biggest proportion of the bank's working funds. Deposits are accepted by the bank in current, fixed, and savings accounts and they are, accordingly, categorized as demand, time and saving deposits. Banks also borrow from other banks on a temporary basis and miscellaneous liabilities are incurred by the bank in the course of its business by accepting or endorsing bills of exchange on behalf of customers.

The assets side of the balance sheet indicates the manner in which funds entrusted to bank are deployed. The bank holds a small proportion of total deposits in the form of cash reserves. Cash reserves include cash with bank and cash held either with other commercial banks or with central bank.

Money at call and short notice pertains to short-term loans to the money market which can be called back by the bank at a very short notice of say one to seven days. These forms of assets are highly liquid and are interest earning, of course at a low rate. Bills discounted is that part of the bank funds which is used to discount the commercial bills and also treasury bills. Investments pertain to that part of funds invested in government securities, shares, etc. preferably short-term or medium-term securities. It also makes loans and advances to its customers.

Posted Date: 9/18/2012 6:17:24 AM | Location : United States







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