Question

Regarding commercial banking balance sheets. First, use a T-account to show how a $100 deposit affects the balance sheet. Separate the funds into required reserves and excess reserves using a required reserve ratio of 0.1. Second, demonstrate what happens to the balance sheet when the bank loans out all of the excess reserves. Third, demonstrate what happens to the balance sheet after loaned funds are deposited in a different bank.

Do not copy and paste. Please

Answer 1

1.) Required Reserves = 100*0.1 = 10 and Excess Reserves shall be the remaining 90

Liabilities Amount Assets Amount Share Capital Reserve Fund Cash 90 Balances with the Central Bank and other banks. 10 Deposits 100 Money at call and Short-Notice Borrowings from other banks Bills Payable Bills for collection Acceptances. Endorsements and other obligations Contingent Liabilities Bills Discounted and Purchased. Investments Loans, Advances, Cash Credits and Overdrafts. Liabilities of Customer for Acceptances. Endorsements and other Obligations. Property, Furniture, Fixtures less Depreciation 100 100

2.)

3.)

Liabilities Amount Assets Amount Share Capital Cash 90 Reserve Fund Balances with the Central Bank and other banks. 10 190 Money at call and Short-Notice Deposits Borrowings from other banks Bills Payable Bills Discounted and Purchased. Investments Loans, Advances, Cash Credits and Overdrafts. Liabilities of Customer for Acceptances. Endorsements and other Obligations. Property, Furniture, Fixtures less Depreciation Bills for collection 90 Acceptances. Endorsements and other obligations Contingent Liabilities 190 190

Now the amount shall move from cash to other bank and deposits shall diminish.

Liabilities Assets Amount Amount Share Capital Reserve Fund Cash Balances with the Central Bank and other banks. 10 Deposits 100 Money at call and Short-Notice Borrowings from other banks Bills Payable Bills Discounted and Purchased. Investments Bills for collection Loans, Advances, Cash Credits and Overdrafts. 90 Acceptances. Endorsements and other obligations Contingent Liabilities Liabilities of Customer for Acceptances. Endorsements and other Obligations. Property, Furniture, Fixtures less Depreciation 100 100

All the Best.