A major liability of a commercial bank arises form
A major liability of a commercial bank arises form
- A) customers deposit
- B) loans and advances
- C) overdrafts
- D) staff allowances
Correct Answer: A) customers deposit
Explanation
This question is asking about a major liability of a commercial bank. The four options given are customers' deposits, loans and advances, overdrafts, and staff allowances. From the options given, the correct answer is Option A: customers' deposits.A liability is something that a bank owes to someone else. In this case, a commercial bank owes its customers the money they have deposited. This means that the bank must be able to return the money to its customers whenever they request it.
Loans and advances (Option B) are assets for the bank because they are owed to the bank by its borrowers. Overdrafts (Option C) are a type of loan where the customer is allowed to withdraw more money than they have in their account, but they must pay interest on the amount borrowed. Staff allowances (Option D) are expenses for the bank, but they are not liabilities owed to anyone else.
It is important for a commercial bank to have enough funds available to cover the deposits of its customers. If too many customers request their money at once and the bank does not have enough funds available, it could lead to a bank run and the bank could fail. Therefore, banks have regulations in place to ensure that they maintain enough reserves to cover their liabilities.
In summary, the major liability of a commercial bank arises from customers' deposits. It is important for banks to have enough funds available to cover these deposits to prevent a bank run and potential failure.