Bank assets equal bank liabilities plus bank capital. a. Bank assets are the uses for bank funds.

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Bank assets equal bank liabilities plus bank capital.

a. Bank assets are the uses for bank funds.

i. They include reserves, securities, and loans.

ii. Over the years, commercial and industrial loans have become less important and mortgages more important as a use for bank funds.

b. Bank liabilities are the sources of bank funds.

i. They include transaction and nontransaction deposits as well as borrowings.

ii. Over the years, transaction deposits have become less important as a source of bank funds.

c. Bank capital is the contribution of the bank’s owners; it acts as a cushion against a fall in the value of the bank’s assets or a withdrawal of its liabilities.

d. Banks make a profit for their owners. Measures of a bank’s profitability include return on assets (ROA), return on equity (ROE), net interest income, and net interest margin.

e. Banks’ off-balance-sheet activities have become increasingly important in recent years. They include:
i. Loan commitments, which are lines of credit firms and households can use whenever necessary.
ii. Letters of credit, which are guarantees that a customer will make a promised payment.

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Money Banking And Financial Markets

ISBN: 9781260226782

6th Edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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