Lecture 5A_EC3332[1] - Lecture Lecture 5 Banking and the...

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ecture 5 Lecture 5 Banking and the Management of Financial Institutions
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he Bank Balance Sheet The Bank Balance Sheet
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ank Operation Bank Operation T-account Analysis: Deposit of $100 cash into First National Bank Assets Liabilities Vault Cash + $100 Checkable Deposits + $100 (=Reserves) () Deposit of $100 check into First National Bank Assets Liabilities Cash items in process Checkable Deposits + $100 of collection + $100 First National Bank Second National Bank Assets Liabilities Assets Liabilities Checkable Checkable Reserves Deposits Reserves Deposits + $100 + $100 – $100 – $100 Conclusion: When bank receives deposits, reserves by equal amount; when bank loses deposits, reserves by equal amount
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rinciples of Bank Management Principles of Bank Management Liquidity Management 1. Liquidity Management 2. Asset Management Managing Credit Risk anaging Interest te Risk Managing Interest-rate Risk 3. Liability Management 4. Capital Adequacy Management
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rinciples of Bank Management Principles of Bank Management Liquidity Management Reserve requirement = 10%, Excess reserves = $10 million ssets iabilities Assets Liabilities Reserves $20 million Deposits $100 million Loans $80 million Bank Capital $ 10 million Securities $10 million Deposit outflow of $10 million Assets Liabilities Reserves $10 million Deposits $ 90 million Loans $80 million Bank Capital $ 10 million Securities $10 million With 10% reserve requirement, bank still has excess reserves of $1 million: no changes needed in balance sheet
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Liquidity Management No excess reserves Assets Liabilities Reserves $10 million Deposits $100 million Loans $90 million Bank Capital $ 10 million Securities $10 million eposit outflow of $ 10 million Deposit outflow of $ 10 million Assets Liabilities Reserves $ 0 million Deposits $ 90 million Loans $90 million Bank Capital $ 10 million Securities $10 million
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This note was uploaded on 02/29/2012 for the course ECONOMICS EC 3332 taught by Professor Shandre during the Spring '12 term at National University of Singapore.

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Lecture 5A_EC3332[1] - Lecture Lecture 5 Banking and the...

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