The course examines the essential elements of banking.

200 LEVEL LECTURE NOTES   ELEMENT OF BANKING II  BAF 221

(200L)  LECTURE 1:   BANKS’ ASSETS & LIABILITIES

A balance sheet  is a financial report that shows the value of a company's assets, liabilities, and owner's equity at a specific period of time, usually at the end of an accounting period, such as a quarter or a year. An asset is anything that can be sold for value. A liability is an obligation that must eventually be paid, and, hence, it is a claim on assets. The owner's equity in a bank is often referred to as bank capital, which is what is left when all assets have been sold and all liabilities have been paid. The relationship of the assets, liabilities, and owner's equity of a bank is shown by the following equation:

Bank Assets = Bank Liabilities + Bank Capital

A bank uses liabilities to buy assets, which earns its income. By using liabilities, such as deposits or borrowings to finance assets such as loans to individuals or businesses, or to buy interest earning securities, the owners of the bank can leverage their bank capital to earn much more than would otherwise be possible using only the bank's capital.