the balance sheet of commercial banks liabilities: sources of funds –checkable deposits...
Post on 21-Dec-2015
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The Balance Sheet of Commercial Banks • Liabilities: Sources of Funds
– Checkable Deposits– Non-transactions Deposits– Borrowings
• discount loans • federal funds market.
• Assets: Uses of Funds – Cash Items
• reserves • cash items in process of collection • vault cash
– Securities• secondary reserves
– Loans
Bank Capital and Profitability• ROA = Net profit after taxes/Total bank assets
• ROE= Net profit after taxes/Bank capital
• Bank Risks• Liquidity Risk
– the risk of a sudden demand for liquid funds
• Credit Risk– a bank’s loans will not be repaid
• Interest-Rate Risk– Banks have short-term liabilities & long-term assets
• mismatch between the maturities of the two sides of the balance sheet creates interest-rate risk.
Bank Risks, continued– Trading Risk
• Buy HIGH – Sell low
– Foreign exchange risk
• Banks hold assets denominated in one currency and liabilities denominated in another
– Sovereign risk
• Some foreign borrowers may not repay their loans because their government prohibits them from doing so.
– Operational risk