What are liabilities of commercial banks and why are they liabilities. Why are loans considered to be assets to banks while they are considered liabilities for the rest of the general public? The Liabilities of Commercial Banks and their Impact on the Economy

The Liabilities of Commercial Banks and their Impact on the Economy

Commercial banks are an important part of modern economies, as they provide many services to both businesses and individuals. As a result, it is important to understand the liabilities that commercial banks have and why they are liabilities. This understanding will help to explain the roles of commercial banks in the economy and the impact that their liabilities have on the financial system. The main types of liabilities that commercial banks have are deposits, loans, and other liabilities such as bonds and securities. Deposits are the funds that customers of commercial banks deposit into their accounts, while loans are the funds that the banks lend out to customers. Both types of liabilities are considered liabilities because they are obligations that must be paid back to the bank. Loans are considered to be assets to banks because they generate income for the bank, but they are considered liabilities for the rest of the public because they must be paid back with interest. The amount of interest that is charged on loans is determined by the bank’s risk assessment of the borrower, as well as market conditions (Bank of America, 2020). Loans are an important part of the economy because they allow businesses to expand and individuals to purchase items that they may not otherwise be able to afford. Bonds and securities are also considered liabilities for commercial banks, as they are obligations that must be paid back with interest (Bank of America, 2020). Bonds are usually issued by governments and are often used to finance public projects. Securities are typically issued by. Cont…