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The Business of Banks It is hard to deny that we live in a money based society Nothing is truly free and the prosperity of our lifestyles is closely related to our economic standing From the wall street suits to the farmer dressed in Carharts we all share one common link- banks I cant imagine one adult person in America who does not patronize a bank in way or another Most of us use banks quite frequently but they are often casually regarded until you really stop to look at the way a bank operates The bottom line is that a bank is a business Their goal of operation is to generate a profit just like any other business The interesting fact though is that they do it by using other peoples money The bank monitors its financial operations the same as any other business by analyzing their assets and liabilities in a form of balance sheet Items categorized on a banks balance sheet are a little more complicated that most others because a line item such as a loan can technically be an asset or a liability depending on the specifics of that line item Even something as seemingly simple as an account in which a customer deposits money may be an asset or a liability depending on the liquidity of the account The list of assets a bank has is one part of the liabilities assets calculation that determines if a bank is generating a profit One asset is reserves Reserves is generally the amount of cash held at the bank for day to day operations An additional portion of reserves is usually held at the Federal Reserve because a bank must have a set amount of liquid cash available in comparison to the amount of instant liabilities the bank is responsible for In other
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