Chapter 10

Chapter 10 - Chapter 10- Banking and the Management of...

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Unformatted text preview: Chapter 10- Banking and the Management of Financial Institutions The Bank Balance Sheet Liabilities Checkable deposits Non-transaction deposits Borrowings Bank capital Assets Reserves Cash items in process of collection Deposits at other banks Securities Loans Other assets Basic Banking: Cash Deposit Opening of a checking account leads to an increase in the banks reserves equal to the increase in checkable deposits Basic Banking: Check Deposit Basic Banking: Making a Profit Asset transformation: selling liabilities with one set of characteristics and using the proceeds to buy assets with a different set of characteristics The bank borrows short and lends long Bank Management Liquidity Management Asset Management Liability Management Capital Adequacy Management Credit Risk Interest-rate Risk Liquidity Management: Ample Excess Reserves Suppose banks required reserves are 10% If a bank has ample excess reserves, a deposit outflow does not necessitate changes in other parts of its balance sheet Liquidity Management: Ample Excess Reserves...
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Chapter 10 - Chapter 10- Banking and the Management of...

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