When a bank issues a CD is the money it receives treated like a deposit in a traditional bank account? After seeing some of smaller banks saying their deposits had recovered it made me wonder how much of that was a result of issuing higher yielding CDs? If it is a large portion then they are really paying a lot for those deposits.
I thought I heard regular deposits are treated as a liability on the books. So that's an interesting question. A cd could be a double whammy.
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Yeah regular deposits are an asset and a liability. I would guess a CD would be the same but the interest they pay is higher. I wonder if they factor the interest in as part of the liability. Banks are so confusing to understand. I don't own many of them but it is like they are always living on the edge.Originally Posted by boneil
I don't see how a CD would be any different than a regular deposit. CD could be seen as less risky. It has a definite maturity date. Checking account obviously doesn't.The real risk is what the bank does with any CD/deposit. Keep it in cash or lend it out.
Certificate of Deposit
It is treated on the books like any other bank deposit, except that it has a maturity date. Due to the penalty (or loss of interest) for early withdrawal the bank does not need to assume the money can walk out the door at any time.
Having said that the bank management needs to manage liquidity risk, which some do better than others.
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