Summary Chapter 3: balance sheet

Chapter 3: Balance sheet
1. The bank balance sheet

• Where does a bank get its funding?

- Own capital

ABILITIES  Retained earnings < making profit

 Equity (stocks) < selling shares of the bank

- Borrowed capital

 Deposits < customers deposit their savings

 Loans < banks take general loans

 Borrowings via the interbank

market (euribor, libor,…) < banks take interbank loans

 Mezzanine capital < banks take subordinated loans (link)

- Borrowings via the central banking system

 Open market transactions < banks take short-term loans (link)

 Standing facilities

(marginal lending facility) < banks take ultra-short-term loans
(link, link)



• How does a bank use the money it has collected?

- Reserves < min x% of deposits (link)

ETS - Loans (that banks give)

 Commercial and private loans < loans to customers

 Interbank debt claims < loans to other banks

- Investments (bonds, securities, …)

- Standing facilities (ECB)

 Standing facilities (deposit facility) < ultra-short-term deposits (link, link)

, - Other assets (buildings, machinery, car park,…)




See exercise on this on slide 7



Overdraft  allowing an account balance to go below zero

REPO: repurchase agreement



2. Banks creating money