Chapter 4: Bank Balance Sheet

Question 1

What is the bank balance sheet

Answer 1

• A statement of assets and liabilities
• Only concerns the transformation function
• Used for transparent and clear financial reporting

REF: Page 21

Question 2

What items are included on the liabilities side of the balance sheet

Answer 2

funds (e.g. savings) entrusted to the bank.
* Savers are considered a creditor from the bank’s perspective, the bank must pay them back on request
* Equity

Question 3

What are the items on the assets side of the balance sheet

Answer 3

credit portfolio and investments
* Money that has been lent out as credit belongs to the bank (e.g. mortgage)
* Cash funds
* Securities
* Real estate

Question 4

Why is the intermediary business not on the balance sheet

Answer 4

• Advisory and intermediary services do not have impact on the assets or liabilities of the bank (e.g. purchase or sale of shares)

Question 5

What is solvency

Answer 5

Bank has enough funds to cover its liabilities

Question 6

What is liquidity

Answer 6

Bank has enough cash funds to cover liabilities, assets that can be liquid easily (securities and mortgages)