Microsoft Word - Money, Banking, and Int Finance(scribd).docx

Money, Banking, and International Finance

Consequently, these deposits require fewer bank services and earn higher interest rates than
checking accounts. Non-transaction deposits include:

 Savings account is the most common and pays a higher interest than interest on checking

accounts. However, savings accounts have fewer services than checking accounts.

 Small-denomination time deposits (Also called Certificates of Deposit) have maturities

ranging from several months to over 5 years. Although they are less liquid than a savings

account, they pay higher interest.

 Large-denomination time deposits are accounts that exceed $100,000. Corporations and

banks invest in these securities. Investors can sell these time deposits in a secondary

market before maturity. Therefore, they are liquid and an alternative to T-bills. As Table 1

shows, investors held $702.8 billion in large time deposits in December 2013.

Table 1. Commercial Banks Assets and Liabilities on December 2013

Assets in billions of dollars Liabilities in billions of dollars
Securities in bank credit 2,515.0
Deposits
Loans
Commercial and industrial loans 1,334.2
Large time deposits 702.8
Real estate loans 3,498.2
Other deposits 8,114.2
Consumer loans 1,155.8
Borrowings
All other loans and leases 756.5
Borrowings from U.S. banks 97.1
Allowance for loan and lease losses (123.3)
Borrowings from others 840.3
Fed funds 81.8
Trading liabilities 116.7
Loans to commercial banks 8.9
Net due to related foreign offices 40.5
Cash assets 1,379.1
Other liabilities 360.1
Trading assets 119.9
Other assets 1,060.0
Capital 1,514.6
Total assets 11,786.2
Total Liabilities plus capital 11,786.3
Source: Board of Governors of the Federal Reserve System. February 7, 2014. Assets and Liabilities of
Commercial Banks in the United States (Weekly) - H.8. Available at
http://www.federalreserve.gov/releases/h8/current/default.htm (access date: 02/12/14).

Borrowings become the last liability. A bank borrows funds if the bank can lend the funds
to a borrower for a higher interest rate than the interest rate paid on the borrowings. Borrowings
are not deposit accounts. Banks can borrow from the Federal Reserve or from other banks. We
call a Federal Reserve loan a discount loans. We show the banks’ borrowings in Table 1. U.S.
banks borrowed $97.1 billion from U.S. banks and $840.3 billion from others nonbanks.
On the other side of a bank’s balance sheet, a bank has assets. Bank takes funds from
depositors and loans these funds to borrowers who pay interest. Thus, banks earn interest from
the loans becoming a vital source of income for the bank. Reserves are the first and most liquid