A bank starts with a clean balance sheet. A depositor arrives and deposits $1M in the bank. Draw the balance sheet of the bank at this stage. Next, the bank retains 10% of the deposits as reserves and loans out the other 90%. Draw the balance sheet at this stage.
(Use the labels CASH, LOANS, DEPOSITS, RESERVES and the dollar amounts for your diagrams). Bonus: when the loan starts generating income from interest payments, this accrues on the asset side of the balance sheet as cash. What liability balances this out? Hint: it’s not in the list above. Get Finance homework help today