The balance sheet, liquidity against profitability, and the distinction between the two kinds of bank.
Why can a bank run out of money while being profitable?
The economics does not change between boards — only the reference number and the exam style. This page is written to the concept, so find your own line below and read on.
| Specification | Reference | Section |
|---|---|---|
| AQA A-Level Economics 7136 | 4.2.4.2 | Commercial banks and investment banks |
| Edexcel A Economics 9EC0 | 4.4.1 | Theme 4 |
| Pearson Edexcel IAL Economics | WEC12 · Unit 2 | Macroeconomic performance and policy |
The balance sheet, liquidity against profitability, and the distinction between the two kinds of bank.
AQA sets this out as 4.2.4.2 — Commercial banks and investment banks, inside Financial markets and monetary policy. Banks, the central bank, rates, and quantitative easing. It is assessed on Paper 2 and Paper 3.
Topic pages on this site are not written and abandoned. Each one gets the definition and the specification framing first, then the diagram drawn properly, then how the board actually examines it, and then the five branches below — added over months rather than dumped in one go.
This page is at the first stage. If you need this topic before then, the revision platform already covers the full specification interactively, and the Intelligence Briefing carries model answers on the essays most likely to appear.
Application is worth more marks than knowledge on this specification — AO2 carries 26–29% against AO1's 20–23%. So the examples are not decoration. They are where a third of the paper lives, and the ones that earn are the ones specific enough to be checked.
Liquidity and profitability pull in opposite directions on the same balance sheet.
Recent bank failures were liquidity events, not solvency ones, which is the distinction this topic teaches.
Maturity transformation is the whole business model and the whole risk.
Each of these becomes a full piece in its own right, in the branches below. What is here is the hook; the argument, the data and the essay application are what the pieces are for.
Every question on this specification is marked against four assessment objectives, and they are not weighted equally. Most revision treats a topic as a body of knowledge; the paper treats it as four separate skills applied to that knowledge. This topic is examined as a define and apply topic, so here is what each objective looks like on it specifically.
| Weight | What it is | What it means on commercial and investment banks | |
|---|---|---|---|
| AO1 | 20–23% | Knowledge and understanding of terms, concepts, theories and models | This is an AO1-heavy topic and the definitions are worth learning exactly. It is also the lightest-weighted objective, so do not stop here. |
| AO2 | 26–29% | Application of that knowledge to economic contexts | Give an example specific enough to be checked. “A public good, such as street lighting” earns; “a public good” does not. |
| AO3 | 26–29% | Analysis of issues and their impact on economic agents | Show what follows from the concept — from scarcity, or immobility, or non-excludability — rather than restating it. |
| AO4 | 22–25% | Evaluation of arguments, using evidence to support a judgement | Name the boundary. Where does the concept stop applying, and which case is genuinely contested? |
Everything above is the anchor. The pieces below take it further, and each one is built to train a particular assessment objective rather than to cover the topic again. They accumulate — nothing on this page gets deleted, it gets added to.
The revision platform covers the whole specification now, and the Academy marks your written answers against the framework examiners use. The library is the free layer, not the only one.
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