Question

9. Draw a balance sheet for New Bank, which started its first day of operations with $6 million in capital. A total of $100 million in checkable deposits is received. The bank makes a $25 million commercial loan and lends another $25 million in mortgage loans. Required reserves are 8%.

Answer 1

Total liabilities and capital (= Total assets) ($ million) = Checkable deposit + Capital = 100 + 6 = 106

Total assets ($ million) = Total reserves + Loans = Total reserves + 25 + 25 = Total reserves + 50

Total reserves ($ million) = Total assets - 50 = 106 - 50 = 56

Required reserves ($ million) = Checkable deposit x 8% = 100 x 8% = 8

Excess reserves ($ million) = Total reserves - Required reserves = 56 - 8 = 48

Balance sheet as follows.

ASSETS	$ Million	LIABILITIES & CAPITAL	$ Million
Reserves:		Checkable deposits	100
Required reserves	8	Capital	6
Excess reserves	48
Total reserves	56
Commercial loans	25
Mortgage loans	25
Total Loans	50
TOTAL	106	TOTAL	106