Final answer:
An equity instrument represents an ownership interest in a company, like stock, and does not need to be repaid, unlike financial liabilities such as loans. On a bank's balance sheet, bank capital is considered equity, while customer deposits are treated as liabilities.
Step-by-step explanation:
An equity instrument is a certificate or contract that signifies an ownership interest (equity) in a company, and may come in the form of stocks, which represent a proportionate share of ownership in a company. Equity instruments differ from financial liabilities, where financial liabilities are obligations that the company must pay back, such as loans or bonds. The key difference is that equity represents an ownership stake and does not have to be repaid, whereas financial liabilities are debts that require repayment.
A bank's balance sheet displays both equity instruments and financial liabilities among other items. Bank capital, which is also seen as net worth, can be considered the equity of the bank, while deposits from customers are treated as financial liabilities since the bank is obliged to return these funds to depositors.