Class 17 Bank Management Liquidity Illustration.

Class 17 Bank Management Liquidity Illustration. - Assets...

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Simple Balance Sheet Assets Change Liabilities Change Tot Reserves 15 Deposits 100 Required 10 Excess 5 Loans 100 Borrowed Funds 30 Securities 35 Bank Capital 20 Total 150 Total 150 Issue12.4 Depositor withdraws 5 Necessitates reducing assets by 5. With ER of 5, easily done. Assets Change Liabilities Change Tot Reserves 15 Deposits 95 Required 10 W/D 5 Excess 0 0 Loans 100 Borrowed Funds 30 Securities 35 Bank Capital 20 Total 150 Total 145 Issue12.5 No excess reserves and 40 securities. Assets Change Liabilities Change Tot Reserves 10 Deposits 100 Required 10 Excess 0 Loans 100 Borrowed Funds 30 Securities 40 Bank Capital 20 Total 150 Total 150 Depositor withdraws 5 Necessitates reducing assets by 5. Reduce assets by 5.
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Unformatted text preview: Assets Change Liabilities Change Tot Reserves 10 Deposits 95 Required 10 W/D 5 Excess Loans 95-5 Borrowed Funds 30 Securities 40 0 Bank Capital 20 Total 145 Total 145 Sell loans of 5 or sell securities of 5 If securities are discounted 50%, Then sell 10 to raise 5 to meet W/D. That means bank capital is reduced by 5 Issue: Write down of Assets viewed as non performing. If 10% of loans are nonperforming or default? Reduces assets by 10 so bank capital is reduced by 10 Problem if loans have become suspect or securities are viewed as Toxic...
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