Criticism of Fractional Reserve Banking - Hypothetical Example of A Bank Balance Sheet and Financial Ratios

Hypothetical Example of A Bank Balance Sheet and Financial Ratios

An example of fractional-reserve banking, and the calculation of the "reserve ratio" is shown in the balance sheet below:

Example 2: ANZ National Bank Limited Balance Sheet as at 30 September 2007
ASSETS NZ$m LIABILITIES NZ$m
Cash 201 Demand Deposits 25482
Balance with Central Bank 2809 Term Deposits and other borrowings 35231
Other Liquid Assets 1797 Due to Other Financial Institutions 3170
Due from other Financial Institutions 3563 Derivative financial instruments 4924
Trading Securities 1887 Payables and other liabilities 1351
Derivative financial instruments 4771 Provisions 165
Available for sale assets 48 Bonds and Notes 14607
Net loans and advances 87878 Related Party Funding 2775
Shares in controlled entities 206 Loan Capital 2062
Current Tax Assets 112 Total Liabilities 99084
Other assets 1045 Share Capital 5943
Deferred Tax Assets 11 Reserves 83
Premises and Equipment 232 Retained profits 2667
Goodwill and other intangibles 3297 Total Equity 8703
Total Assets 107787 Total Liabilities plus Net Worth 107787

In this example the cash reserves held by the bank is NZ$3010m (NZ$201m Cash + NZ$2809m Balance at Central Bank) and the Demand Deposits (liabilities) of the bank are NZ$25482m, for a cash reserve ratio of 11.81%.

Read more about this topic:  Criticism Of Fractional Reserve Banking

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