Suppose that in a country, there are only two banks, Bank A and Bank B. The file HW9 Bank Balance Sheets shows their balance sheets. Here are some simplifying assumptions to make our lives a bit more bearable: 1. The country uses dollars as its unit of accounts. 2. There are no travelers' checks. 3. There are no fancy accounts in this country like money market mutual funds deposits. 4. Other deposits consist of saving deposits by households as well small denomination (less than $100,000) time deposits. 5. The amount of currency held by the non-bank public is 10 percent of demand deposits. 6. All the reserves are held at the central bank. They also call their central bank "the Fed". We conclude that the excess reserves held by Bank A is dollars and that held by Bank B is dollars. Bank A Balance Sheet Assets Uses of Funds Liabilities + Net Worth Sources of Funds $65,000 Demand Deposits Other Deposits Reserves $150,000 $1,000,000 Treasury Bonds $85,000 Borrowing From the Fed From Fed Funds Market $50,000 $100,000 Loans $1,350,000 Net Worth $1,500,000 Total $200,000 $1,500,000 Total Assets Uses of Funds Bank B Balance Sheet Liabilities + Net Worth Sources of Funds $10,000 Demand Deposits Other Deposits Reserves $100,000 $940,000 Treasury Bonds $35,000 Borrowing From the Fed From Fed Funds Market $30,000 Loans $1,255,000 Net Worth $1,300,000 Total $230,000 $1,300,000 Total