[quote=ucodegen][quote davelj]Forget about your last post. You’re putting the cart before the horse. There’s no point in discussing this further until you have the VERY basics down.[/quote]I wasn’t trying to get into a c**k fight here. I ‘yielded the floor’ to allow you to post the accurate rendition. [/quote]
You brought the issue up in the first place – not me – and explained it rather incorrectly, and in a manner of detail that suggested that you clearly thought you knew what you were talking about.
[quote=ucodegen]
This is ridiculous considering that you are taking me more to task than people who were claiming that the banks are making a mint off of the fed loans.[/quote]
I’d addressed this issue before in a previous post so I didn’t see any reason to repeat myself.
[quote=ucodegen]
I don’t know what your real point is here.. but here goes (unfortunately this posting interface doesn’t allow me to create tables.) REMEMBER: I did not say what those assets were from…
Cash & Equivalents = 100M(paid in capital, undivided earnings)
Securities
Loans
Other Assets
Total Assets = 100M
Deposits
Fed Borrowings
FHLB Borrowings
Other Liabilities
Total Liabilities
Common Equity = 100M
[/quote]
Ok, the bank you’re beginning with here is unlike the bank you described in your original post, which was as follows (I quote):
“Imagine if you are a bank and have 100mil in assets, you have to hold back a percentage.. ie 20% and can loan 80% (20% reserve)”
First problem: the only reason a bank has to hold back a percentage of its assets as “reserves” (or, my preference, “liquidity”) is because those reserves are there to ensure adequate liquidity for depositors. In the example above, you assume no deposits, therefore no reserves would be necessary. So we’ve got a fundamental misunderstanding to rectify before moving forward. (Moreover, if you’re not going to fund yourself with deposits… why bother going through the hassle of getting a bank charter at all? The only value of being a bank is the ability to raise deposits insured by the FDIC.)
So, start with a bank that looks like the one you described originally: one that would require 20% of its assets to be held in “reserves.” This should take less than 2 minutes, but you will need to make assumptions about each individual line item of assets and liabilities. This is simple – don’t worry, I’ll be able to follow it. But remember, you gotta have deposits… or you don’t need reserves.
