Final answer:
Liabilities in banking refer to the deposits made by customers, which are claims by non-owners against the bank's assets. The bank owes the deposited funds to its customers, classifying these funds as liabilities. Banks balance this by holding assets such as cash, bonds, and loans.
Step-by-step explanation:
Liabilities are claims against a bank's assets by non-owners of the bank. This is because when bank customers deposit money into a checking account, savings account, or a certificate of deposit, the bank views these deposits as liabilities. Deposits must be payable to the customers upon their request to withdraw. Essentially, the bank owes this money to its depositors.
A bank's assets, on the other hand, include items like cash in vaults, reserves held at the Federal Reserve Bank, bonds, and loans made to customers. The value of these assets can fluctuate, which can impact the bank's net worth - calculated as assets minus liabilities. To mitigate risks, banks may diversify their assets by holding a mixture of loans, bonds, and cash reserves.