Question

Q1. Explain how do Commercial banks resemble securities firms and explain the special nature for structures of their financial statements.

Answer:

Answer 1

Securities firms provide transaction services related to financial investments, which are quite distinct from the services provided by traditional depository institutions. However, many commercial banks have separate departments that offer the services of securities firms, and others actually merge or partner with securities firms.

Commercial banks make money by providing loans and earning interest income from those loans

Securities firms do not issue securities, but rather trade them in the open market. The securities side of the business can only pair buyers with the new stock being brought to market, while the investment banking division actually issues the new stock. Securities firms primarily exist to facilitate buy and sell transactions between individual investors

Structure of Financial Statements

The general structure of financial statements for banks isn’t that much different from a regular company, the nature of banking operations means that there are significant differences in the sub-classification of accounts. Banks use much more leverage than other businesses and earn a spread between the interest income they generate on their assets (loans) and their cost of funds (customer deposits
Commercial banks have a tipical balance sheet ,it consists of the core accounting equation, assets equal liabilities plus equity.

A bank, however, has unique classes of balance sheet line items that other companies won’t. The typical structure of a balance sheet for
Balance sheet that ,ASSETS = LIABILITIES + EQUITY