The following entries in millions of dollars are from the ba

The following entries (in millions of dollars) are from the balance sheet of Coner National Bank.

U.S. Treasury bills

$20

Demand deposits

40

Mortgage-backed securities

30

Loans from other banks

5

C & I Loans

50

Discount Loans

5

NOW accounts

40

Savings accounts

10

Reserve deposits with Federal Reserve

8

Cash items in process of collection

5

Municipal bonds

5

Bank building

4

a) Use the entries to construct a balance sheet.

b. Coner National Bank’s capital is what percentage of its assets?

c. If the required reserve ratio is 10%, is Coner holding excess reserves? If so, how much?

U.S. Treasury bills	$20
Demand deposits	40
Mortgage-backed securities	30
Loans from other banks	5
C & I Loans	50
Discount Loans	5
NOW accounts	40
Savings accounts	10
Reserve deposits with Federal Reserve	8
Cash items in process of collection	5
Municipal bonds	5
Bank building	4

Solution

Solution to part (a):

Assets

U.S. Treasury Bills $20

Mortgage Backed Securities $30

C&I Loans $50

Municipal Bonds $5

Cash items in process of collection $5

Bank Building $4

Reserve deposits with Federal Reserve $8

Total Assets $122

Liabilities

Savings Accounts $10

NOW Accounts $40

Discount Loans $5

Demand Deposits $40

Loans from Other Banks $5

Liabilities $100

Capital $22

Total Liabilities = $100 + $22 = $122

Solution to part (b):

Capital / Asset Ratio = 22/122 = 0.18

Solution to part (c):

To solve for excess reserves, we must first calculate the amount of required reserves using the following formula:

Required Reserves = m * Demand Deposits (Where, m is the required reserve ratio)

= 10% * $40 million = $4 million

The bank has a reserve of $8 million. We solve for excess reserve using the following formula:

Excess Reserves = Reserves - Required Reserves

= $8 million - $4 million

= $4 million