- Balance sheet
- A balance sheet is an accounting tool that lists what a bank owns, its assets, against what it owes, its liabilities.
- Bank capital
- Bank capital is the difference between a bank's assets and its liabilities, in other words its net worth.
What sits on a bank's balance sheet
Can you name the four items, besides capital, on a simple bank balance sheet?
Three are assets; the fourth is its main liability.
Reserves are cash in a bank's vaults and money in its account at the central bank, kept to pay depositors who withdraw.
Can you think of an example?
Notes in a bank's cash machines, and its balance at the Bank of England, used to settle payments.
Loans are money lent to households and firms, who must repay it with interest over months or years.
Can you think of an example?
A 25-year mortgage is an asset to the bank: the borrower owes it monthly payments until the loan is repaid.
Securities are bonds the bank has bought, mostly from government, which pay interest and can be sold for cash.
Can you think of an example?
Gilts, bonds issued by the UK government, pay a fixed coupon and can be sold quickly for cash.
Deposits are money customers have placed with the bank, which it owes back to them, so they are a liability.
Can you think of an example?
£800 of wages in a current account is an asset to its owner and a liability to the bank, payable on demand.