Financial Markets and Institutions (2-downloads)

First National Bank

Assets

Liabilities

Vault cash

+$100

Checkable deposits

+$100

Because vault cash is also part of the bank’s reserves, we can rewrite the T-

account as follows:

Assets

Liabilities

Reserves

+$100

Checkable deposits

+$100

Note that Jane Brown’s opening of a checking account leads to an increase in the

bank’s reserves equal to the increase in checkable deposits.

If Jane had opened her account with a $100 check written on an account at

another bank, say, the Second National Bank, we would get the same result. The

initial effect on the T-account of the First National Bank is as follows:

Assets

Liabilities

Cash items in process

of collection

+$100

Checkable deposits

+$100

Checkable deposits increase by $100 as before, but now the First National Bank is

owed $100 by the Second National Bank. This asset for the First National Bank is

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Part 6 The Financial Institutions Industry