Chapter 10 Flashcards
Balance Sheet T-Chart
Assets|Liabilities
Assets: reserves, securities, loans
Liabilities: checkable deposits, borrowings, bank capital
Discount Loans
borrowings from the Fed
Reserves
banks’ holding of deposit in accounts with the Fed plus currency that is physically held by banks
Required Reserves
reserves that are held to meet the Fed’s requirement that for every dollar of deposits at a bank, a certain fraction must be kept as reserves
Required Reserve Ratio
the fraction of deposits that the Fed requires be kept as reserves
Excess Reserves
reserves in excess of required reserves
Secondary Reserves
short-term US government and agency securities held by banks
Deposit Outflows
when deposits are lost because depositors make withdrawals and demand payment
Liquidity Management
the acquisition of sufficiently liquid assets to meet the bank’s obligations to depositors
Credit Risk
the risk arising because borrowers may default
Interest-Rate Risk
the riskiness of earnings and returns on bank assets that results from interest-rate changes
ROE formula
net profit after taxes/equity capital
ROA formula
net profit after taxes/assets
Equity Multiplier Formula
ROE/ROA
assets/equity capital
Credit Rationing
refusing to make loans even though borrowers are willing to pay the stated iRate or even a higher rate
