Transcript Chapter 12

Chapter 12
Depository
Institutions:
Banks and Bank
Management
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
The Balance Sheet of
Commercial Banks
• Balance Sheet Identity
• Total Bank Assets = Total Bank Liabilities +
Bank Capital
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Web Page – Board of Governors
12-3
The Balance Sheet of
Commercial Banks
• Assets: Uses of Funds
• Cash Items
• reserves
• cash items in process of collection
• vault cash
• Securities
• secondary reserves
• Loans
12-4
The Balance Sheet of
Commercial Banks
12-5
The Balance Sheet of
Commercial Banks
• Liabilities: Sources of Funds
• Checkable Deposits
• Non-transactions Deposits
• Borrowings
• discount loans
• federal funds market.
12-6
The Balance Sheet of
Commercial Banks
12-7
12-8
The Balance Sheet of
Commercial Banks
• Bank Capital and Profitability
• bank capital
• ROA = Net profit after taxes
Total bank assets
• ROE= Net profit after taxes
Bank capital
12-9
12-10
Bank Risk
• Liquidity Risk
• the risk of a sudden demand for liquid funds
12-11
Bank Risk
12-12
Bank Risk
12-13
Bank Risk
12-14
Bank Risk
12-15
Bank Risk
• Credit Risk
• a bank’s loans will not be repaid
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Bank Risk
• Interest-Rate Risk
• bank's liabilities tend to be short-term, while
its assets tend to be long-term. This
mismatch between the maturities of the two
sides of the balance sheet creates interestrate risk.
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Bank Risk
• Trading Risk
• If the price at which an instrument is
purchased differs from the price at which it is
sold, the risk is that the instrument may go
down in value rather than up. This type of risk
is called trading risk
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Bank Risk
• Other Risks
• Foreign exchange risk comes from holding
assets denominated in one currency and
liabilities denominated in another
• Sovereign risk arises from the fact that some
foreign borrowers may not repay their loans,
not because they are unwilling to, but
because their government prohibits them from
doing so.
• operational risk
12-20
12-21
Chapter 12
Depository
Institutions:
Banks and Bank
Management
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.