Financial statements of banks.pdf

6 1282017 4 the balance sheet report of condition a

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12/8/2017 4 The Balance Sheet (Report of Condition) A balance sheet, or Report of Condition, lists the assets, liabilities, and equity capital (owners’ funds) held by or invested in a bank or other financial firm on any given date. Assets = Liabilities + Equity capital 7 The Balance Sheet (Report of Condition) The assets on the balance sheet are of four major types: Cash in the vault and deposits held at other depository institutions (C), Government and private interestbearing securities purchased in the open market (S), Loans and lease financings made available to customers (L), and Miscellaneous assets (MA). 8
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12/8/2017 5 The Balance Sheet (Report of Condition) Liabilities fall into two principal categories: Deposits made by and owed to various customers (D) and Nondeposit borrowings of funds in the money and capital markets (NDB). Finally, equity capital represents long-term funds the owners contribute (EC). Therefore , the bank’s balance sheet identity can be written: C + S + L + MA = D + NDB + EC 9 Cash assets (C) are designed to meet a bank’s need for liquidity (i.e., immediately spendable cash) in order to meet deposit withdrawals, customer demands for loans, and other unexpected or immediate cash needs.
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