Lecture08 - Topic 8, page 1 Topic 8 Bank Management...

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Topic 8, page 1 Topic 8 Eco 350 • Money and Banking Department of Economics, SUNY Bank Management
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1. The Bank’s Balance Sheet Topic 8, page 2 Assets: Uses of Funds Liabilities and Net Worth: Sources of Funds i. Reserves: Vault cash and deposits at the Fed i. Checkable deposits ii. Other deposits: Savings Eco 350 • Money and Banking Department of Economics, SUNY ii. Other cash items iii. Securities: Government bonds iv. Loans (2/3 of assets) v. Other assets accounts, time deposits (CDs) (1/2 of funds) iii. Borrowings: Loans owed by the bank iv. Bank capital: Net worth
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Topic 8, page 3 T ABLE 1 Balance Sheet of All Commercial Banks (items as a percentage of the total, December 2008) Eco 350 • Money and Banking Department of Economics, SUNY
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2. How Banks Make Profits A. Asset Transformation i. Sell high liquidity, low risk, low return liabilities ii. Buy lower liquidity, higher risk, higher return assets Topic 8, page 4 Eco 350 • Money and Banking Department of Economics, SUNY
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2. How Banks Make Profits A. Asset Transformation i. Sell high liquidity, low risk, low return liabilities ii. Buy lower liquidity, higher risk, higher return assets B. Utilize economies of scale in diversification, liquidity, etc. Topic 8, page 5 Eco 350 • Money and Banking Department of Economics, SUNY Risk Expected Return (%) Individual’s Portfolio Bank’s Portfolio
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2. How Banks Make Profits (continued) C. Basic operation of a bank i. You deposit a $100 bill in your checking account with HSBC. Topic 8, page 6 HSBC Assets Liabilities ault cash 100 heckable 100 Eco 350 • Money and Banking Department of Economics, SUNY Vault cash $100 Checkable Deposits $100
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2. How Banks Make Profits (continued) C. Basic operation of a bank i. You deposit a $100 bill in your checking account with HSBC. Topic 8, page 7 HSBC Assets Liabilities eserves 100 heckable 100 Eco 350 • Money and Banking Department of Economics, SUNY Reserves $100 Checkable Deposits $100
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2. How Banks Make Profits (continued) C. Basic operation of a bank ii. You deposit a $100 check written on an account at BofA in your checking account with HSBC. Topic 8, page 8 HSBC Assets Liabilities ash items 100 heckable 100 Eco 350 • Money and Banking Department of Economics, SUNY Cash items in process of collection $100 Checkable Deposits $100
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2. How Banks Make Profits (continued) C. Basic operation of a bank ii. You deposit a $100 check written on an account at BofA in your checking account with HSBC. Topic 8, page 9 HSBC Assets Liabilities eserves 100 heckable 100 Eco 350 • Money and Banking Department of Economics, SUNY Reserves $100 Checkable Deposits $100 BofA Assets Liabilities Reserves -$100 Checkable Deposits -$100
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2. How Banks Make Profits (continued) C. Basic operation of a bank ii. You deposit a $100 check written on an account at BofA in your checking account with HSBC. HSBC
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Lecture08 - Topic 8, page 1 Topic 8 Bank Management...

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