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Assets                                  OZ Bank Liabilities and equity ESF AUD 150

Assets                                  OZ Bank

Liabilities and equity

ESF

AUD 150m

Deposits

AUD 810m

Loans

AUD 850m

Deposits Fund Manager

AUD 100m

Household

AUD 50m

Equity

AUD 40m

Assets                                  Fund Manager

Liabilities and equity

Deposits at OZ Bank

AUD 100m

Equity

AUD 100m

Assets                                  Bank B

Liabilities and equity

ESF

AUD 100m

Deposits

AUD 700m

Loans

AUD 900m

Deposits Mr Red.

AUD 100m

Equity

AUD 200m
  1. Fund manager buys AUD 100m bonds from Mr. Red using his deposits. Mr. Red has his deposit account at Bank B. Show all resulting changes on the balance sheet of OZ Bank, Fund Manager, and Bank B.
    What happens to the ratio of loans to deposits in the banking system?
  2. Mr. Red uses his newly acquired deposits to repay his loan at Bank B. Show the impact on Bank B’s balance sheet. What happens to the ratio of loans to deposits in the banking system?
  3. OZ Bank is issuing AUD 50m bonds and the buyers happen to be OZ bank customers. Add the changes to OZ Bank’s balance sheet.
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Answer #1
OZ Bank Fund Bank B
Assets Aud Mn Liabiliteis and Equity USD Assets Aud Mn Liabiliteis and Equity USD Assets Aud Mn Liabiliteis and Equity USD
ESF 150 Deposits 810 Deposits at OZ bank 100 ESF 100 Deposits 700
Loans 850 Deposit fund manager 100 Loans 900 Deposits Red 100
Household 50
Equity 40 Equity 100 Equity 200
Total 1000 Total 1000 Total 100 Total 100 Total 1000 Total 1000
a Fund manager buys AUD 100m bonds from Mr. Red using his deposits. Mr. Red has his deposit account at Bank B. Show all resulting changes on the balance sheet of OZ Bank, Fund Manager, and Bank B.
OZ Bank Fund Bank B
Assets Aud Mn Liabiliteis and Equity USD Assets Aud Mn Liabiliteis and Equity USD Assets Aud Mn Liabiliteis and Equity USD
ESF * 50 Deposits 810 Deposits at Bank B 100 ESF 100 Deposits 700
Loans 850 Deposit fund manager 0 Loans 900 Deposits - Fund 100
Household 50
Equity 40 Equity 100 Equity 200
Total 900 Total 900 Total 100 Total 100 Total 1000 Total 1000
Assumed paid deposit of fund manager from ESF
Deposits to loan ratio in OZ Bank has been changed
Original Revised
          1.07 95%
b Mr. Red uses his newly acquired deposits to repay his loan at Bank B. Show the impact on Bank B’s balance sheet. What happens to the ratio of loans to deposits in the banking system?
OZ Bank Fund Bank B
Assets Aud Mn Liabiliteis and Equity USD Assets Aud Mn Liabiliteis and Equity USD Assets Aud Mn Liabiliteis and Equity USD
ESF * 50 Deposits 810 Deposits at Bank B 100 ESF 200 Deposits 700
Loans 850 Deposit fund manager 0 Loans 800 Deposits - Fund 100
Household 50
Equity 40 Equity 100 Equity 200
Total 900 Total 900 Total 100 Total 100 Total 1000 Total 1000
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