Other borrowed funds 39 subordinated notes and

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38. Other borrowed funds 39. Subordinated notes and debentures 40. Other liabilities 41. Total liabilities 42. Preferred stock 43. Common stock 44. Surplus and paid-in capital 45. Retained earnings 46. Total equity capital 47. Total liabilities and equity capital $350.03 196.75 4,369.14 2,552.71 178.68 3,569.84 $11,217.15 1,766,94 $12,984.09 884.40 545.19 200.00 172.80 $14,786.48 0.00 1,390.50 578.41 $1,968.91 $16,755.39 $68,024.47 9,228.53 211,421.88 132,238.32 184,016.29 93,174.21 $698,103.70 84,119.23 $782,222.93 208,279.30 229,992.89 21,770.72 43,111.13 $1,285,376.97 4,159.69 122,378.34 27,683.50 $154,221.53 $1,439,598.50 *Values are taken from the 2007 FDIC report of condition data tapes and available at the Federal Reserve Bank of Chicago Web site. TABLE 2B–1 Balance Sheet for Two Commercial Banks (in millions of dollars)
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6 Appendix 2B Commercial Banks’ Financial Statements and Analysis to other banks seeking increased short-term funding. The interbank market for excess reserves is called the federal funds (fed funds) market. In the United States, federal funds are short-term uncollateralized loans made by one bank to another; more than 90 percent of such transactions have maturities of one day. Repurchase agreements (RPs or repos) can be viewed as collateralized federal funds transactions. In a federal funds transaction, the bank with excess reserves sells fed funds for one day to the pur- chasing bank. The next day, the purchasing bank returns the fed funds plus one day’s interest, reflecting the fed funds rate. Since credit risk exposure exists for the selling bank, because the purchasing bank may be unable to repay the fed funds the next day, the seller may seek collateral backing for the one-day fed funds loan. In an RP trans- action, the funds-selling bank receives government securities as collateral from the funds-purchasing bank—that is, the funds-purchasing bank temporarily exchanges securities for cash. The next day, this transaction is reversed—the funds-purchasing bank sends back the fed funds it borrowed plus interest (the RP rate); it receives in return (or repurchases) its securities used as collateral in the transaction. Long-maturity investments such as U.S. Treasury bonds and U.S. agency secu- rities (item 8), municipals (item 9), mortgage-backed securities (item 10), and most other securities (item 11) usually offer somewhat higher expected returns than short-maturity investments since they are subject to greater interest rate risk exposure. U.S. Treasury securities and Government National Mortgage Association (agency) bonds are fully backed by the U.S. government and thus carry no default risk. Other U.S. government agency securities, such as those of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are not directly backed by the full faith and credit of the U.S. government and therefore carry some default risk. Municipal securities held by commercial banks are generally high-rated, investment-grade (i.e., low- risk) securities, issued by municipalities as either general obligation or revenue bonds. 5 Interest paid on municipals is exempt from federal income tax obligations.
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