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Chapter 5: Problem 15

How do you calculate a bank's net worth?

Short Answer

Expert verified
To calculate a bank's net worth, first identify the bank's total assets and total liabilities from its financial statements, typically found in the balance sheet. Then, subtract the total liabilities from the total assets using the formula \( Bank's\: Net\: Worth = Bank's\: Total\: Assets - Bank's\: Total\: Liabilities \). This value represents the bank's overall financial health and its ability to withstand financial shocks or losses.

Step by step solution

01

Identify the bank's total assets

The bank's total assets include things like cash, loans made to customers, securities held, and other property owned by the bank. These numbers can be found in the bank's financial statements, typically in the balance sheet.
02

Identify the bank's total liabilities

The bank's total liabilities include things like deposits held by customers, loans from other banks, and other outstanding debts. Similar to assets, these numbers can be found in the bank's financial statements, typically in the balance sheet.
03

Calculate the bank's net worth

To calculate the bank's net worth, subtract the bank's total liabilities from its total assets using the following formula: \( Bank's\: Net\: Worth = Bank's\: Total\: Assets - Bank's\: Total\: Liabilities \) By calculating the bank's net worth, we can determine the overall financial health of the bank and how well it can withstand financial shocks or losses.

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Most popular questions from this chapter

Would you usually expect GDP as measured by what is demanded to be greater than GDP measured by what is supplied, or the reverse?

U.S. macroeconomic data are among the best in the world. Given what you learned in the Clear It Up "How do statisticians measure GDP?", does this surprise you, or does this simply reflect the complexity of a modern economy?

In \(1980,\) Denmark had a GDP of \(\$ 70\) billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of \$160 billion (measured in U.S. dollars) and a population of 5.3 million. By what percentage did Denmark's GDP per capita rise between 1980 and 2000?

Explain why the money listed under assets on a bank balance sheet may not actually be in the bank?

Should banks have to hold \(100 \%\) of their deposits? Why or why not?
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