Are Banks Backward?
The following is an excerpt from an article dealing with accounting and banks in The Wall
Street Journal, “GAO Says Accountants Auditing Thrifts Are Hiding Behind Outdated
Standards” (February 6, 1989) p. C21. Congress deregulated the left side of the balance sheet [liabilities] by permitting thrifts to get into high risk business but kept regulation and deposit insurance for the right side of the balance sheet [assets].
1. From an accounting perspective, what is wrong with this quote?
2. As a bank depositor, do you care about the balance sheet of the bank where you deposit your money? Why or why not? How might your attitude change if the U.S. federal government were to abolish deposit insurance?
3. Consider your account at a bank—does the bank view your account as an asset or as a liability?