Constant Net Worth of the Bank During Financial Intermediation
In the Marco-Julia model, the bank's net worth, or equity, remains unchanged when it accepts a deposit and issues a loan for the same amount. This stability occurs because the transaction increases the bank's assets (the new loan) and liabilities (the new deposit) by precisely the same value, leaving the owner's equity constant. For instance, after taking a 50-unit deposit and making a 50-unit loan, the bank's initial equity of ten units of grain is unaffected.
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Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
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Bank's Profit Motive for Lending
Bank Balance Sheet Analysis
A commercial bank initially has total assets of 100 units and total liabilities of 80 units. The bank then accepts a new deposit of 50 units from one customer and simultaneously issues a new loan of 50 units to another customer. What is the bank's net worth immediately after these two transactions are completed?
A commercial bank accepts a $10,000 deposit from a customer and simultaneously issues a new loan for $10,000 to another customer. Which statement best explains why the bank's net worth remains unchanged immediately following these transactions?
When a bank accepts a new deposit and uses those funds to issue a loan of the exact same amount, its net worth increases because it now holds a new, valuable asset (the loan).