What are deposits considered for a bank?

Deposits are considered liabilities for a bank because they represent the amount of money that the bank owes to its customers. When customers deposit money into their accounts, that money is a liability on the bank's balance sheet since the bank has an obligation to return it to the customers upon request.

This relationship is fundamental to banking. The bank utilizes deposited funds to provide loans or make investments, which generate income. However, since the bank must return these deposits to account holders, they remain classified under liabilities. Understanding this aspect of banking is crucial, as it highlights the bank's responsibility towards its customers, while also illustrating the mechanics of how banks operate with their assets and liabilities.

Investments and capital, while related to a bank's operations, do not accurately describe deposits in the same way. Investments refer to assets that are expected to generate income, while capital typically refers to the funds raised by the bank's owners or shareholders to support its operations. Thus, only liabilities accurately characterize deposits in the context of banking.