Introduction to Finance

 Representative 
Composite Balance Sheet for 
Commercial Banks
Percent 
of Total 
Assets 
Percent of Total 
Liabilities and 
Stockholders’ 
Equity
ASSETS:
CASH & BALANCES DUE
FROM 
DEPOSITORY
INSTITUTIONS
7%
LIABILITIES AND 
STOCKHOLDERS’ EQUITY:
DEPOSITS
68%
Vault cash and cash items in 
process of collection
Transaction accounts
Demand deposits
Balances due from depository 
institutions
NOW accounts
Nontransactional accounts
Balances due from Federal
Reserve 
Banks
Time deposits
Savings deposits
Foreign deposits
SECURITIES
18
OTHER LIABILITIES
24
U.S. government securities
Federal funds purchased
State and local government 
securities
Other borrowed money 
& 
liabilities
Other debt securities
Equity securities
STOCKHOLDERS’ EQUITY
8
Preferred stock
LOANS
59
Common stock
Loans secured by real estate
Capital surplus
Loans to depository institutions
Retained earnings
Commercial and industrial loans
Loans to individuals
TOTAL LIABILITIES &
Other loans
STOCKHOLDERS’ EQUITY
100%
OTHER ASSETS
16
Bank premises and fixed assets
Assets held in trading accounts
All other assets
TOTAL ASSETS
100%

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64
C H A PT E R 3 Banks and Other Financial Institutions
the typical day’s operation will result in approximately the same amount of cash deposits as 
cash withdrawals. A margin of safety, however, is required to take care of those periods when, 
for one reason or another, withdrawals greatly exceed deposits.
The appropriate amount of cash a bank should carry depends largely on the character of 
its operations. For example, a bank that has some very large accounts might be expected to 
have a larger volume of unanticipated withdrawals (and deposits) than a bank that has only 
small individual accounts. An unpredictable volume of day-to-day withdrawals requires, of 
course, a larger cash reserve.
“Balances due from depository institutions” refl ect, in large part, the keeping of substantial 
deposits with correspondent banks. Correspondent banks typically are located in large cities, and 
these relationships can help speed the check-clearing process, as discussed earlier in the chapter.
“Balances due from Federal Reserve Banks” refl ect reserves held at Federal Reserve 
Banks. Bank and other depository institutions are required to keep a percentage of their depos-
its as reserves either with the Reserve Bank in their districts or in the form of vault cash. As 
noted, the Monetary Control Act requires uniform reserve amounts for all depository insti-
tutions to enhance monetary control and competitive fairness. As withdrawals are made and 
total deposit balances decrease, the amount of the required reserves also decreases. The vault 
cash reserves that have been freed may then be used to help meet withdrawal demands.