A majority of a bank’s balance sheet is composed of three components—loans, securities and liabilities—and understanding the differences between them is essential to understanding how banks function.
- Loans are a type of asset and the primary way banks extend credit into the economy;
- Securities are also assets and help banks manage risk and liquidity while earning interest income; and
- Liabilities, primarily deposits, represent how banks fund these activities.
Total assets (which include loans and securities) must equal total liabilities plus bank equity.
To put these balance-sheet components in context, the charts below present first-quarter 2025 data from all U.S. bank holding companies.
Loans
Banks provide credit to the economy in several ways.
- Real estate loans include both residential real estate (RRE) and commercial real estate (CRE) lending. RRE lending includes loans to purchase one-to-four-family properties, loans to refinance such properties and closed-end loans and open-end lines of credit secured by a borrower’s equity in such properties. CRE lending includes acquisition, development and construction lending and the financing of income-producing real estate.
- Commercial and industrial (C&I) loans refer to credit extended to a wide array of business purposes, including inventory financing and equipment purchases. C&I loans, unlike CRE loans, are for business operations and are not typically tied to real estate.
- Consumer loans encompass a range of household credit products beyond RRE, such as auto loans, personal loans and credit card balances.
- When making loans, banks typically obtain collateral to back the loan in case the borrower fails to repay the loan according to its terms, i.e., defaults. In the case of real estate loans like RRE and CRE, the loan is typically backed by the underlying real estate itself. C&I loans are typically secured by business assets like accounts receivable, inventory and equipment. Most consumer loans (student loans, credit card balances), in contrast, are not backed by collateral.
Securities
Banks also supply credit and manage liquidity through securities purchases (e.g., government bonds). When a bank purchases a government or corporate bond, it provides direct funding to the issuer. Banks also use securities to manage risk.
- U.S. Treasury securities and private-sector instruments (including corporate bonds and asset-backed securities) make up roughly half of these portfolios.
- Over half of banks’ securities consist of agency mortgage-backed securities. MBS is a type of investment that is backed by a pool of mortgages and is guaranteed by entities like Fannie Mae, Freddie Mac or Ginnie Mae.
Liabilities
Banks have several types of liabilities that they use to finance the loans they make and the securities they purchase.
- Deposits are the largest source of funding and represent the primary liability for banks. These include checking and savings accounts as well as certificates of deposit. Approximately half of all bank deposits are insured by the Federal Deposit Insurance Corporation.
- Banks also obtain short-term funding from other sources. For example, banks will frequently contract to sell securities they own, usually government bonds, to another bank and purchase such securities back shortly at slightly higher prices (referred to as a repurchase agreement or repo). As another example, banks have their own deposit accounts with the Federal Reserve Banks across the United States. These deposits are referred to as reserves. Banks with excess reserves may sell those reserves to another bank, with the borrowing bank paying the selling bank interest on those reserves. In this case, the borrowing bank is said to have purchased Fed funds.
- Finally, other liabilities include long-term borrowings. For the largest institutions, this includes bail-in debt or total loss-absorbing capacity (TLAC) debt, which can be converted to equity in the event of a bank resolution.
