describe the banks liabilities and equity accounts a commercial bank typically has
Another of your clients is the son of the CEO of a local bank. He just took over for his dad who recently had a heart attack. He came from role as CEO of a large manufacturing company and is new to the banking industry. He has received instructions from his Board of Directors, to make sure he has established adequate reserves against potential losses.
He came to you and asked that you describe the banks liabilities and equity accounts a commercial bank typically has, and has asked for a written report on the following topics:
– What are the typical major asset and liability categories on a bank’s balance sheet; comment on the debt to equity level as compared to other corporate balance sheets you may have viewed?
– How exactly does a bank establish its reserve levels why does a bank care about these required reserve levels?
– Do most banks keep only the required reserves? Why?
– Knowing that changing reserve requirements can impact the bank’s profitability, describe what could happen to potential profitability if $10,000 is deposited in a banks savings account.?The reserve requirement was 5% yesterday but the Fed changes it to 10% today, when the deposit happens to be made.?The bank regularly pays 3% on savings account deposits and charges 12% on loans.
