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Commercial bank assets — like assets of other companies — are items that bring value to the bank. Each commercial bank creates a monthly, quarterly, or annual balance sheet that lists in detail the assets owned. The major asset categories include cash, securities, and loans, with several subcategories or other classes possible under the larger groups. In short, commercial bank assets represent the items that make up the economic wealth of the institution, with net economic wealth being total bank assets less total bank liabilities. The health of a commercial bank is often determined from the balance sheet of the institution.
Cash is typically the number one asset on a commercial bank’s balance sheet, primarily because it is the most liquid asset for the institution. For a commercial bank, cash represents the money generated from interest-bearing accounts or money placed into financial investments. In some cases, commercial bank assets that list cash sources may also include cash held at other financial institutions. Commercial banks often leave cash at these other institutions in order to generate interest or other financial returns. Disclosures or different lines items for cash at other banks are necessary on the commercial bank’s balance sheet.
Many banks invest their cash in market securities, which can include bonds and securities issued by other companies or organizations. These items represent assets, though they are not cash and may or may not be highly liquid. Therefore, different lines on the balance sheet are necessary to properly define commercial bank assets. In most cases, the bank lists these assets in order of liquidity, with the most liquid first and the least liquid last. Other designations for investments and securities may be necessary to fully inform stakeholders about these assets.
Long-term assets often fall under the category of loans and other monies given to individuals and businesses. Common subgroups in a commercial bank’s loan portfolio include mortgages, auto loans, business loans, and other types of loans made for a specific purpose. The principal balance of the loan is typically the main part of these commercial bank assets. Interest generated from the loans fall under the income statement revenue accounts, which is completely separate from the assets listed on the balance sheet. Toxic assets represent loans that are no longer generating interest payments; banks may need to lower the return on these loans and in some cases write them off as they no longer hold value.
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