Tuesday, June 16, 2009

securities held by banks

the second item in the commercial bank balance sheet , "government securities" includes all debt obligations of the federal government held by banks. this term is not restricted to bonds, but includes treasury bills and treasury notes, as well. banks consider short-term government securities to be secondary reserves, because they can be readily turned into cash.
"other bonds and securities " primarily refers to municipal bonds, or tax exempts, which are the debt obligations issued by states, toll-road authorities, counties, school districts, water districts, and the like, as well as those debt securities sold by cities and towns. "loan and discounts" is an item of great concern to banks, because making loans is a prime function of bank. Although banks obtain some of their income from interest received on U.S. government securities, municipal securities, and service charges, the bulk of their earnings comes from the loan they make. loans, however, do involve some risk, so that they are sometimes referred to collectively as risk assets.

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