Google
Saturday 
June 19, 2021 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
WILLINGNESS TO PAY: The price or dollar amount that someone is willing to give up or pay to acquire a good or service. Willingness to pay is the source of the demand price of a good. However, unlike demand price, in which buyers are on the spot of actually giving up the payment, willingness to pay does not require an actual payment. This concept is important to benefit-cost analysis, welfare economics, and efficiency criteria, especially Kaldor-Hicks efficiency. A related concept is willingness to accept.

Visit the GLOSS*arama


BANK ASSETS:

What a bank owns, including loans, reserves, investment securities, and physical assets. Bank assets are typically listed on the left-hand side of a bank's balance sheet. Bank liabilities, what a bank owes, are listed on the right-hand side of a bank's balance sheet. Net worth is the difference between assets and liabilities. The largest asset category of most bank is loans, which generates interest revenue. A critical asset category used to maintain the safety of deposits is reserves (vault cash and Federal Reserve deposits).
Bank assets are the physical and financial "property" of a bank, what a bank owns. While a bank commonly owns physical property (buildings, land, furniture, equipment), the bulk of a bank's assets are financial--legal claims on the property or the wealth of others. The two most notable asset categories are loans (which generate interest revenue) and reserves (which keep deposits safe).

A Representative, Hypothetical Balance Sheet

OmniBank Balance Sheet
OmniBank Balance Sheet
Before getting into the details of bank assets, consider this representative, hypothetical balance sheet for OmniBank (a representative, hypothetical bank) presented in the exhibit to the right.

Like any balance sheet this one for the OmniBank is divided into two sides--assets on the left and liabilities and net worth on the right. As a "balance" sheet, both sides are equal--they balance. The assets on the left-hand side of the balance sheet are what OmniBank owns. Liabilities on the right-hand side of the balance sheet are what OmniBank owes. Net worth, also on the right-hand side of the balance sheet, is then the difference between assets and liabilities. In effect, net worth is what the bank owes to the owners of OmniBank.

As a profit-seeking business, OmniBank's primary duty is to adjust these assets and liabilities to acquire profit. Of course, ALL businesses acquire profit by adjusting assets and liabilities. They boost revenue assets and reduce cost liabilities. But, unlike other types of producers, banks do not make adjustments with real production. In fact, the accounting process of adjusting entries in the balance sheet IS OmniBank's production. OmniBank's business is to change these entries.

Four Assets

OmniBank Assets
OmniBank Assets
Now consider the primary asset categories for a bank. OmniBank assets are, of course, what the bank owns. OmniBank, being a representative bank, has four main categories of assets listed on the balance sheet at the right:
  • Physical Assets: This includes the buildings, land, furniture, and equipment owned by the bank. While this is what most people probably think of as assets, it is relatively minor for most banks.

  • Loans: The second asset category, the most important one for all banks, is loans. Loans are the primary source of interest revenue. While a loan is a liability for the borrower, it is an asset for the bank, for the lender. This asset includes loans to consumers (home loans, personal loans, automobile loans, credit card loans) and businesses (real estate development loans, capital investment loans).

  • Reserves: The third asset category is reserves. While this is small in amount, it is extremely important. Reserves are what banks use for daily transactions, such as processing checks or satisfying cash withdrawals. Banks use reserves to ensure the security of deposits. Two varieties of reserves worth noting are vault cash (the actual paper currency and coins that is kept in the bank, that is, in the vault) and Federal Reserve deposits (deposits that banks keep with the Federal Reserve System to clear checks and assist in other banking activities).

  • Investment Securities: The fourth asset category is investment securities. These act as a buffer between loans and reserves. They are safer than loans, but not as safe as reserves. They pay more interest than reserves, but not as much as loans. If a bank has a few extra reserves, but is not ready to lock in loans for the long term, then investment securities are the answer. Two important items in this category are U.S. Treasury securities (the securities that the federal government issues to borrow the funds used to finance the federal deficit) and Federal funds (loans made to other banks).

<= BALANCED-BUDGET MULTIPLIERBANK BALANCE SHEET =>


Recommended Citation:

BANK ASSETS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2021. [Accessed: June 19, 2021].


Check Out These Related Terms...

     | bank balance sheet | bank liabilities | money creation | goldsmith banking | goldsmith money creation | deposit expansion multiplier | money multiplier |


Or For A Little Background...

     | banks | banking | fractional-reserve banking | bank reserves | checkable deposits | savings deposits | monetary economics | liquidity | financial markets | money |


And For Further Study...

     | Federal Reserve System | central bank | monetary policy | bank panic | bank run | monetary aggregates |


Related Websites (Will Open in New Window)...

     | Federal Reserve System | Federal Deposit Insurance Corporation |


Search Again?

Back to the WEB*pedia


APLS

YELLOW CHIPPEROON
[What's This?]

Today, you are likely to spend a great deal of time searching the newspaper want ads looking to buy either a small, foam rubber football or an instructional DVD on learning to the play the oboe. Be on the lookout for rusty deck screws.
Your Complete Scope

This isn't me! What am I?

Junk bonds are so called because they have a better than 50% chance of default, carrying a Standard & Poor's rating of CC or lower.
"The will to win is important, but the will to prepare is vital. "

-- Joe Paterno, football coach

CBI
Confederation of British Industry
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2021 AmosWEB*LLC
Send comments or questions to: WebMaster