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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

“Because diversification is a desirable strategy for avoiding risk, it never makes sense for a bank to specialize in making specific types of loans.” Is this statement true, false, or uncertain? Explain your answer

Table 1 reports the balance sheet of all commercial banks based on aggregate data found in the Federal Reserve Bulletin. Compare this table to the most recent balance sheet reported by Bank of America. Go to http://investor .bankofamerica.com/phoenix.zhtml?c=71595&p=irolreportsannual#fbid=Fkk8V4xUVzI and click on the most recent annual report to view the balance sheet. Does Bank of America have more or less of its portfolio in loans than the average bank? Which type of loan is most common?

If no decent lending opportunity arises in the economy, and the central bank pays an interest rate on reserves that is similar to other low-risk investments, do you think banks will be willing to hold large amounts of excess reserves?

It is relatively easy to find up-to-date information on banks because of their extensive reporting requirements. Go to http://www2.fdic.gov/qbp/, where you will find summary data on financial institutions. This site is sponsored by the Federal Deposit Insurance Corporation. Click on “Quarterly Banking Profile,” select the most recent quarter and access QBP, click on “Complete QBP” and scroll to Table I-A.

a. Have banks’ returns on assets been increasing or decreasing over the past few years?

b. Has the core capital been increasing, and how does it compare to the capital ratio reported in Table 1 of the text?

c. How many institutions are currently reporting to the FDIC?

If a bank is falling short of meeting its capital requirements by $1million, what three things can it do to rectify the situation?
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