1. Bank’s Balance Sheets (The answers in relative lecture videos)

a) Loans are listed as assets or liabilities of a bank?

b) What are loans key characteristics? List different types of loans?

c) Please rank from high to low the liquidity of reserves, securities and loans for a bank.

2. Liquidity Risk

Your bank has the following balance sheet:

Assets                      Liabilities (unit in million)        

Reserves    $50       Checkable deposits $200

Securities   50            

Loans       150         Bank capital                50

a) What is the definition of liquidity risk?

b) If there is an unexpected deposit outflow of $50 million, what is the immediate effect on the balance sheet (fill in numbers in the blank)? Is there liquidity risk?

Assets                      Liabilities                                  

Reserves    $_____      Checkable deposits $________

Securities   _____      

Loans         _____              Bank capital                  ____

c) If there is an unexpected deposit outflow of $100 million, what is the immediate effect on the balance sheet (fill in numbers in the blank)? Is there liquidity risk?

Assets                      Liabilities                                  

Reserves    $_____      Checkable deposits $________

Securities   _____      

Loans         _____              Bank capital                 ____

d) If there is an unexpected deposit outflow of $150 million, what is the immediate effect on the balance sheet (fill in numbers in the blank)? Is there liquidity risk?

Assets                      Liabilities           

Reserves    $_____      Checkable deposits $________

Securities   _____      

Loans         _____              Bank capital                  ____