Final answer:
Bank deposits such as those in checking and savings accounts or certificates of deposit are considered liabilities for a bank. These demand deposits are used by depository institutions to make loans, and by diversifying their loan portfolios, banks mitigate the risk of financial loss.
Step-by-step explanation:
When customers deposit money into accounts such as a checking account, savings account, or a certificate of deposit, these funds are treated as liabilities by the financial institution. This is because the bank is obligated to return these funds upon the customers' request for withdrawal. For instance, the Safe and Secure Bank, as depicted in the provided figures, holds $10 million in such deposits.
These demand deposits are classified as checkable deposits in banks that customers can access by writing a check or making a cash withdrawal. The financial institution that accepts these deposits, known as a depository institution, uses the accumulated funds to make loans to individuals and businesses, contributing to various economic activities. Through the process of lending, these institutions aim to diversify their loan portfolios by extending credit to a range of customers, which helps mitigate the risk of financial loss linked to any single borrower or group of borrowers failing to repay the loans.