Deposits are both a source of funds and a liability for financial institutions.

Deposits are indeed considered both a source of funds and a liability for financial institutions. When a customer deposits money into an account, the bank receives those funds, which serves as a source of capital that the bank can lend out or invest. At the same time, the deposited funds represent a liability for the bank because they are obligated to return those deposits to the customers upon request. This dual nature of deposits—contributing to the bank’s liquidity while also creating a responsibility to the depositor—is fundamental to understanding how banks operate within the financial system. Hence, stating that deposits are both a source of funds and a liability accurately reflects their role in banking operations.