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1. If the bank suffers the deposit outflow of $6 million, what will its balance now look like? Suppose that the First National Bank has the following balance sheet position and that the required reserve ratio is 20 percent.

Assets

Liabilities

Reserves

$25 million

Deposits

$100 million

Loans

$75 million

Bank Capital

$10 million

Securities

$10 million

Show this by filling in the amounts in the following balance sheet:

4. If, after selling off securities, the bank is not hit by another $10 in withdrawals of deposits and it sells off all its securities to obtain reserves, what will the balance sheet look like?

Assets

Liabilities

Reserves

Deposits

Loans

Bank Capital

Securities

6. Using the beginning balance sheet for First National Bank and assuming that First National bank has a net profit after tax of $1,650,000

Calculate First National Bank’s Return on Assets (ROA)

Calculate First National Bank’s Equity Multiplier (EM)

Using the info in a and b, calculate First National Bank’s Return on Equity (ROE).

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Jamar Ferry
Jamar FerryLv2
28 Sep 2019

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Related questions

1. Start with the following balance sheet (in millions of dollars) for a bank. For each segment, however, use the updated balance sheet from the previous segment as the starting point.

Assets Liabilities+Capital

Reserves 15 Deposits 145

Loans 100 Capital 20

Securities 50

a. Show the balance sheet after withdrawals of $10 million.

Assets Liabilities+Capital

Reserves Deposits

Loans Capital

Securities

b. If reserve requirements are 10%, show the balance sheet after the bank borrows in the Federal funds market to meet the reserve requirement.

Assets Liabilities+Capital

Reserves Deposits

Loans Borrowing

Securities Capital

c. Show the balance sheet after loan losses of $3 million.

Assets Liabilities+Capital

Reserves Deposits

Loans Borrowing

Securities Capital

d. Show the balance sheet after the bank sells $2.5 million worth of securities.

Assets Liabilities+Capital

Reserves Deposits

Loans Borrowing

Securities Capital

Bank of Bird-in-Hand has $12 million in reserves, $50 million in securities, $148 million in loans, $160 million in deposits and $50 million in bank capital. Write out its balance sheet. To make up for its reserve deficit, suppose Bank of Bird-in-Hand borrows 25% of the deficit amount from other banks, 25% of the deficit amount from the Federal Reserve, calls in loans to raise 25% of the deficit amount and sells securities to raise the remaining 25%. What does its new balance sheet look like?

2.The Fed makes an open-market purchase of $5 million in an economy in which no bank holds excess reserves and the assumptions of the simple multiplier hold with a reserve requirement of 8 percent. Draw up a table to show the amount of new deposits in each new bank (show the amounts in the first five of them), the additional reserves held by that bank, and the loans made by that bank, as each successive bank lends out its excess reserves. Finally, calculate the total amount of new deposits, of additional reserves, and of loans made in the economy.

3.A bank has reserves of $34.3 million, securities of $65.2 million, and loans of $287.5 million. It has transaction accounts totaling $357.7 million and capital of $29.3 million. The reserve requirement is 0 percent on the first $7 million of transaction accounts, 3 percent on transaction accounts from $7 million to $47 million, and 10 percent on transaction accounts above $47 million.

a. Draw up the bank's balance sheet and calculate the bank's excess reserves.

b. Suppose the bank makes a loan equal to the amount of its excess reserves that you calculated in part a. Draw up the bank's balance sheet before the customer spends the proceeds of the loan. What are the bank's excess reserves?

c. Now suppose the customer spends the proceeds of the loan. Draw up the bank's balance sheet and calculate its excess reserves.

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