Analysis of Bank Liquidity
A commercial bank presents a simplified balance sheet where its assets, totaling $100 million, are composed of $10 million in cash reserves and $90 million in long-term loans. Its liabilities consist entirely of $100 million in customer deposits that can be withdrawn at any time. Analyze this bank's financial position and explain the fundamental reason it would be unable to function if all depositors attempted to withdraw their funds simultaneously. In your explanation, differentiate between the bank's liquid and illiquid assets.
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Bank Liquidity Assessment
A commercial bank has the following simplified balance sheet: Assets consist of $10 million in cash reserves and $90 million in loans to customers. Liabilities consist of $100 million in deposits from customers. If all customers attempt to withdraw their deposits at the same time, which of the following statements accurately describes the bank's situation?
A bank that lends out a portion of its deposits can always meet all withdrawal demands from its depositors at any given time, as long as its total assets equal its total liabilities.
Bank Liquidity and Withdrawal Demands
A commercial bank has the following simplified balance sheet: Assets consist of $20 million in cash and $80 million in long-term loans. Liabilities consist of $100 million in customer deposits, which can be withdrawn at any time. Why would this bank be unable to satisfy all withdrawal requests if every depositor demanded their money back simultaneously?
Analysis of Bank Liquidity
A small commercial bank has the following balance sheet: $15 million in cash reserves and $85 million in long-term loans to businesses. Its only liability is $100 million in customer deposits. If all depositors attempt to withdraw their funds at once, match each financial concept to its correct description or value in this specific scenario.
Assessing a Bank's Liquidity Shortfall
Calculating a Bank's Liquidity Position
A commercial bank holds $100 million in customer deposits. It maintains $15 million as cash reserves and has loaned out the remaining $85 million. A financial commentator states, 'The bank is perfectly safe because its assets of $100 million ($15M cash + $85M loans) exactly match its liabilities of $100 million in deposits.' Which of the following best evaluates the commentator's statement?