Problem
• What is the balance sheet?
In this problem you need to calculate the balance sheet for the Great West bank. The balance sheet is a financial statement that tells you about a bank's health. It lists the bank's sources of funds and how they are used. It also tells you how the bank manages credit and interest rate risk. There are two parts to this problem:
I. Show what the balance sheet would look like with the following financial details:
i. Demand deposits - $29 million
ii. Advances from the Bank of Canada - $1 million
iii. Fixed Deposits - $31 million
iv. Securities - $ 26 million
v. Non-mortgage Loans - $35 million
vi. Reserves and Cash - $10.5 million
vii. Mortgage Loans - $25 million
viii. Borrowings - $25 million
II. Show what the balance sheet would look like if the desired reserves are 8 percent. Assume that Great Wests started operations with $6 million in capital. It then receives $100 million in chequable deposits. The bank makes a $25 million commercial loan and another $25 million in mortgages. Ignore any loan loss reserves.