1. Depository Institutions: Banks and Bank Management
Chapter 7
Depository Institutions:
Banks and Bank Management

2. CONTENS
7.1 Bank Balance Sheet
7.2 Bank Risk

3. 7.1 The Balance Sheet of Commercial Banks
1. Balance Sheet Identity
Total Bank Assets = Total Bank Liabilities + Bank Capital

4. Web Page – Board of Governors

5. The Balance Sheet of Commercial Banks
2. Assets: Uses of Funds
Cash Items
reserves
cash items in process of collection
vault cash
Securities
secondary reserves
Loans

6. The Balance Sheet of Commercial Banks

7. The Balance Sheet of Commercial Banks
3. Liabilities: Sources of Funds
Checkable Deposits
Non-transactions Deposits
Borrowings
discount loans
federal funds market.

8. The Balance Sheet of Commercial Banks

10. The Balance Sheet of Commercial Banks
4. Bank Capital and Profitability
bank capital
ROA = Net profit after taxes Total bank assets
ROE= Net profit after taxes Bank capital

12. 7.2 Bank Risk Liquidity Risk
the risk of a sudden demand for liquid funds

13. Bank Risk

14. Bank Risk

15. Bank Risk

16. Bank Risk

17. Bank Risk
2. Credit Risk
a bank’s loans will not be repaid

18. Bank Risk 3. Interest-Rate Risk
bank's liabilities tend to be short-term, while its assets tend to be long-term. This mismatch between the maturities of the two sides of the balance sheet creates interest-rate risk.

20. Bank Risk
4. Trading Risk
If the price at which an instrument is purchased differs from the price at which it is sold, the risk is that the instrument may go down in value rather than up. This type of risk is called trading risk

21. Bank Risk
5. Other Risks
Foreign exchange risk comes from holding assets denominated in one currency and liabilities denominated in another
Sovereign risk arises from the fact that some foreign borrowers may not repay their loans, not because they are unwilling to, but because their government prohibits them from doing so.
operational risk

23. Chapter 7
End of chapter