Commercial Bank potx

COMMERCIAL BANKS 8/1/2011 B01012 - Commercial banks 1 COMMERCIAL BANKS 1. Definition Commercial banks are in the business of providing banking services to individuals, small businesses and large organizations. While the banking sector has been consolidating, it is worth noting that far more people are employed in the commercial banking sector than any other part of the financial services industry. 8/1/2011 B01012 - Commercial banks 2 Commercial banks are in the business of providing banking services to individuals, small businesses and large organizations. While the banking sector has been consolidating, it is worth noting that far more people are employed in the commercial banking sector than any other part of the financial services industry. 2. The balance sheet of commercial banks Total bank assets = Total bank liabilities + bank capital bank assets are the uses for bank funds - They include reserves, securities and loans. - Over the years, securities have become less important and mortgages more important as a use for bank funds. Total bank assets = Total bank liabilities + bank capital bank assets are the uses for bank funds - They include reserves, securities and loans. - Over the years, securities have become less important and mortgages more important as a use for bank funds. 8/1/2011 B01012 - Commercial banks 3 • How Bankers Keep Books – Banks keep balance sheets • Assets = liabilities + net worth – Assets include: • Reserves • Loans – Liabilities include: • Deposits owed to customers. • How Bankers Keep Books – Banks keep balance sheets • Assets = liabilities + net worth – Assets include: • Reserves • Loans – Liabilities include: • Deposits owed to customers. 8/1/2011 B01012 - Commercial banks 4 8/1/2011 5B01012 - Commercial banks • The Limits to Money Creation by a Single Bank – Banks can lend money in their vault that is above the minimum required reserve ratio. – In doing so, they create new money. • The Limits to Money Creation by a Single Bank – Banks can lend money in their vault that is above the minimum required reserve ratio. – In doing so, they create new money. 8/1/2011 B01012 - Commercial banks 6 8/1/2011 7B01012 - Commercial banks 8/1/2011 8B01012 - Commercial banks 8/1/2011 9B01012 - Commercial banks Multiple Money Creation by a Series of Banks When all banks make loans with funds they have that are above the required reserve ratio, the society’s money supply expands. Multiple Money Creation by a Series of Banks When all banks make loans with funds they have that are above the required reserve ratio, the society’s money supply expands. 8/1/2011 10B01012 - Commercial banks . COMMERCIAL BANKS 8/1/2011 B01012 - Commercial banks 1 COMMERCIAL BANKS 1. Definition Commercial banks are in the business of providing banking services to individuals, small. in the commercial banking sector than any other part of the financial services industry. 2. The balance sheet of commercial banks Total bank assets = Total bank liabilities + bank capital bank. 6 8/1/2011 7B01012 - Commercial banks 8/1/2011 8B01012 - Commercial banks 8/1/2011 9B01012 - Commercial banks Multiple Money Creation by a Series of Banks When all banks make loans with funds they