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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 bank’s 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 bank’s 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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This note was uploaded on 02/13/2011 for the course ECON 121 taught by Professor Labadie during the Spring '10 term at GWU.
- Spring '10