Step 24: Nice things to know about the Bank Balance Sheet

Bank Balance Sheet = 

• Assets and Liabilities in a T-Account

Liabilities = 

• DD
• Owner's Equity (Stock Shares)

Assets = 

• RR
• ER
• Bank Property
• Securities
• Loans

Assets must equal Liabilities

-DD = RR + ER

Money is created through the Monetary Multiplier

• ER x 1 / RR (multiplier)= New Loans throughout the banking system

Money Supply is affected

• cash from a citizen becomes DD , but does NOT change the Money SupplyER from this cash becomes "immediate" loan amount
• ER x Multiplier become new loans and DD changes the Money Supply
• The FED buying bonds creates new loans and changes the Money Supply
• IF the FED buys the bonds on the open market, this becomes a new DD amount
• IF the FED buys bonds from the account already held by a particular bank, then the amount only becomes new ER

Supplemental Note about Bonds

• bond "prices" move opposite to the changes in interest rates
• the higher the interest rate will push bond prices down (less money supply)
• the lower the interest rate will push bond prices up (more money supply)