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Chapter 9: Q. 21 (page 264)

New Bank started its first day of operations with \(155million in capital. A total of \)92million in checkable deposits is received. The bank makes a \(28 million commercial loan and lends another \)23 million in mortgage loans. If required reserves are 5.4%, what does the bank balance sheet look like?

Short Answer

Expert verified

The balance sheet result are

Total asset -$247million

Total Liability -$247million

Step by step solution

01

concept Introduction

A bank is a monetary organization authorized to accept deposits and make loans. Banks may also deliver financial benefits such as capital management, money dealings, and secure deposit boxes.

02

Explanation

The New Bank balance sheet is as follows:

Assets Liabilities
Required reserves $5millionCheckable Deposits $92million
Excess reserves $191millionBank Capital $155million
Loans $51million
03

$92 millionStep 3 Final answer

Required Reserves - $5million

Excess Reserves - $191million

Loans - $51million

Checkable Deposits - $92million

Bank Capital -$155million

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Most popular questions from this chapter

Suppose you are the manager of a bank that has \(15million of fixed-rate assets, \)30million of rate-sensitive assets, \(25million of fixed-rate liabilities, and \)20million of rate-sensitive liabilities. Conduct a gap analysis for the bank, and show what will happen to bank profits if interest rates rise by 5percentage points. What actions could you take to reduce the bank’s interest-rate risk?

Go to the St. Louis Federal Reserve FRED database, and find data for all commercial banks on total liabilities (TLBACBM027SBOG), total deposits (DPSACBM027SBOG), and residual of assets less liabilities (RALACBM027SBOG).

a. What is the balance sheet interpretation of the residual of assets less liabilities?

b. For the most recent month of data available, use the three indicators listed above to calculate the total amount of borrowings by banks.

Suppose you are manager of a bank whose \(200million of assets have an average duration of five years and whose \)160 million liabilities have an average duration of seven years. Conduct a duration analysis for the bank and show what will happen to the net worth of the bank if interest rates fall by 1%. What will happen if the rates rise by 1%? When would the bank be better off?

If a bank finds that its ROE is too low because it has too much bank capital, what can it do to raise its ROE?

Using the T-accounts of the First National Bank and the Second National Bank given in this chapter, describe what happens when Jane Brown writes a check for $90on her account at the First National Bank to pay her friend Joe Green, who in turn deposits the check in his account at the Second National Bank.
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