00:01
So here we've got a question about banking that's asking about capital versus assets.
00:05
And just to understand this more thoroughly, let's draw a balance sheet for the bank, right? let's talk about what the options are for the bank manager.
00:16
So banks have liabilities and they also have assets.
00:23
At a very basic level, you can think of the liabilities as the deposits, right? the bank owes the customers money if the customers come looking for the deposits.
00:35
For the asset side, the bank has loans and cash, right? the bank, when it receives the deposits, it doesn't keep them on cash.
00:48
It puts a lot of the deposits into loans, right? so most of the bank's assets are loans, and this cash is usually what we call capital, right? now, this is not actually the case, right? people often refer to cash as being capitaled, but what capital is actually on the liability side, right? the capital here is the money the owners have at risk.
01:23
That's what we mean by bank capital.
01:25
It is the money that the people running the bank put into the game.
01:29
It's not cash, and that's an important distinction because we all, often talk about capital as just being sort of money, right? capital is the money that the owners have at risk.
01:43
And usually this is called equity or instead of capital, also called equity in capital.
01:50
And it is the amount by which assets are greater than other liabilities, right? so imagine that you have a bank where the liabilities are equal to the assets.
02:09
We're sorry where the deposit liabilities are equal to the assets.
02:12
That means the bank is only playing with depositors money.
02:16
But imagine that you have another bank that's half deposits and half money that the owners of the bank put in...