Bank Assets - Securities

Overview

In addition to issuing loans, banks will often invest in securities trading in the capital markets. As a general rule, the securities that a bank invests in will be some sort of structured security.
The reasons for buying securities as opposed to issuing loans include the following

• The demand for loans may not meet the amount of deposits that the bank has
• Diversificaiton - some banks are limited by geography to make loans to a particular area of the country. Securities on the other hand will included loans to companies and individuals that the bank may not have access to, and including from other geographic areas. This provides diversification for the bank's portfolio.