What amount should be considered when evaluating custodial credit risk for deposits?

When evaluating custodial credit risk for deposits, the most relevant amount to consider is the bank balance. Custodial credit risk refers to the risk that a financial institution holding deposits may not be able to return those deposits or that they may not be insured by the FDIC or other governmental agencies.

The bank balance represents the amount of deposits held by the financial institution at any given time. It is essential to assess this balance to understand the potential risk of loss in the event that the institution fails or encounters financial difficulties. In this context, the focus is on the actual funds held by the bank on behalf of the depositor, which can directly impact the risk exposure.

On the other hand, the book balance may not accurately reflect the current situation of the funds deposited, particularly if there are outstanding checks or pending transactions. Therefore, for the purpose of custodial credit risk evaluation, the bank balance provides a clearer picture of risk related to the safety of the funds deposited.