Why is cash considered a liability for banks?

Question

Curious. Trying to understand what’s happening with svb, and this concept does not click yet.

In: 1

Answer 1

It’s something that people with an intermediate-level knowledge of finance say.

The beginner viewpoint is that cash-in-the-vault is an asset because having cash is a positive thing.

The intermediate viewpoint is that cash-in-the-vault is a liability because it implies that the bank owes money and owing money is a liability.

The advanced viewpoint is that cash-in-the-vault is indeed an asset, owing money is a liability, and conflating the two concepts is a bad idea because it prevents you from doing proper accounting.