Using the economics of banking theory covered in class, we show how the balance sheet for the Bank of Milan, Tennessee would appear assuming an asset management bank, where you have a problem that demand for assets are greater than supply of deposits plus capital.

Bank of Milan, Tennessee

Statement of Financial Conditions (pro forma)

October 1, 2019

Assuming an Asset Management Bank

U.S. Treasury Securities$0 Demand Deposits $8,000.00_

Agriculture Loans$10.000.00Time Deposits$10,000.00_

Consumer Loans$15,000.00Capital2,000.00

Total Assets$25,000.00Total Liab & NW $20,000.00_

Therefore, you need to start over assuming a liability management bank. Determine the new equilibrium balance sheet and proforma income statement.

Demand function for agriculture loans (L_A)

r_A = 13.00% - .0005L_A

L_A=$________r_A= ________%

Demand for function for consumer loans (L_C)

r_C = 9.00% - .0002L_C

L_C=$________r_C= _________%

Supply function for demand deposits (D_D)

r_D = -4.00% + .0004375D_D

D_D= $_________r_D=________%

Supply function for time deposits (D_T)

r_T = 0.00 + .00015D_T

D_T= $_________r_T=________%