Finance- Discuss some of the reasons we covered in class

4. Discuss some of the reasons we covered in class that explain why the banking industry is now dominated by very large banks with assets greater than $10B.

5. Assume that Securitas Bank is a medium-sized bank in the country of Hyponatremia. The

bank’s only assets and liabilities at the beginning of the year are given in the following balance

sheet:

MonoBank Balance Sheet

Assets Liabilities

Vault Cash $ 8 Billion Checking Deposits $200 Billion

Deposits in the

Central Bank ? Loans from the Central Bank $ 10 Billion

Loans $230 Billion Taxes Due $ 20 Billion

Bonds $ 50 Billion

Real Estate $ 30 Billion Bank Capital

?

Assume that over the course of the year, the bank receives $25 Billion in new deposits, makes $10 Billion in new loans to businesses and consumers, and $25 Billion in loans default.

If there are no changes in any of the other balance sheet categories, show Securitas Bank’s balance sheet at year’s end. Be sure to include any changes in reserves, assuming that any new reserves are held as deposits with the Central Bank, so vault cash stays constant at $8 Billion. Note that the excess reserve ratio you found in part (a) no longer applies, although the required reserve ratio is still 6%

Show the final balance sheet, not changes in the balance sheet.

Explain your reasoning, and show your work.

c. Did the bank make or lose money over the year? Explain.