Question

Consider a bank that starts its day with 125 million in deposits, borrowing of 2 million and bank capital of 8 million. It makes loans of 115 million ( 25 million mortgages, 8 million to industrial country banks and 82 million to crypto companies) and purchases Government of Canada bonds of 10 million. Assume the desired reserve ratio is 8%

a. I pt. Draw the balance sheet for this bank with the above information.

Answer 1

The balance sheet for the bank lists assets including reserves, loans, and government bonds. Liabilities include deposits and borrowing, with bank capital as the balance. Total assets and liabilities plus bank capital both equal $135 million.

Step-by-step explanation:

To set up the balance sheet for the bank in question, we list both the assets and liabilities including the bank capital. The desired reserve ratio is 8%, which will impact the reserves that the bank holds.

Assets:

• Reserves: $125 million * 8% = $10 million
• Loans: $115 million
• Government of Canada bonds: $10 million

Liabilities + Bank Capital:

• Deposits: $125 million
• Borrowing: $2 million
• Bank Capital: $8 million

The balance sheet would have total assets of $135 million ($10 million in reserves + $115 million in loans + $10 million in government bonds). The total liabilities and bank capital would be $135 million ($125 million in deposits + $2 million in borrowing + $8 million in bank capital), assuming that loans and bonds are counted at face value and there are no other assets or liabilities not specified in the question.