Bank Balance Sheet

Bank Balance Sheet

A spreadsheet showing a bank's assets and liabilities

Why is it called a "balance sheet"?

Because both sides of the spreadsheet have to balance (aka have the same dollar value)

T Chart

another word for bank balance sheet

Asset

something the bank owns

Liability

something the bank owes

Demand Deposit

money held in checking accounts

Checkable deposit

another word demand deposit

Required Reserves

the portion of each deposit the bank has to keep on hand by law; aka money in "the vault"

The Required Reserve Ratio is determined by the

Fed (aka the Central Bank of the US)

Excess Reserves

Extra money that the bank doesn't have to keep in the vault

What can the bank do with Excess Reserves?

1. The basis of loans to customers

2. The basis of covering withdrawals made by customers

Total Reserves

Required Reserves + Excess Reserves

Bonds

aka Government Bond; an asset for the bank; earns interest for the bank

Commercial Bank

a bank like Bank of America or Wells Fargo

Central Bank

the Fed

The Fed is "the banker's bank". That means...

commercial banks can take loans from the Fed if they are short on money

Fractional Reserve Banking

a banking system that keeps only a fraction of deposits "in the vault"

What two pillars does the banking system rest on?

Confidence; liquidity

Solvent

able to pay debts

Bank run

It's what happens when people lose faith in the bank's solvency.