Macro: Unit 4.6 -- Bank Balance Sheets (T-Accounts)

Hey Everyone! I'm Mr. Willis, and You Will Love Economics!

In this video, I will:
- Explain how banks work
- Define the fundamental components of a bank balance sheet: liabilities ands assets
- Demonstrate how demand deposits and other liabilities create assets for a bank
- Discuss how banks are able to repay liabilities from assets when withdrawals are requested
- Illustrate how to use the reserve ratio to determine the required reserves a bank must hold
- Define excess reserves
- Explain how a bank will pull from excess reserves or financial investments in its assets
column in order to keep its loans outstanding when covering withdrawals
- Review the fundamentals of how T-accounts must balance

Are you looking to teach this topic in your class? We have designed an activity to fit perfectly with this video:

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[bellap]

Anyone else watching this before the macro test?

[paulrobert]

One of the most underrated Econ channel on YouTube
You deserve a million subs

[MrsNazemo]

thank you for extending the question, it really helped with understanding how this stuff works!

[happythoughts]

Mr. Willis thank you for your help . Your videos are life lines. As a business major you’re making a huge difference for college students.

[alexiolney]

this was the most helpful video that I've found on youtube regarding balance sheets (and I've watched a lot). It finally clicked! Thanks!!

[syedaruqaiyataronnum]

Thank you so much for the video. It helped a lot! And you explained it all so nicely wow !

[jamalibrahim]

Fantastic stuff, I use your videos to study for my econ course, Big thank you

[antonionavarro]

You’re the best ever thank you so much I now understand

[elinaphiri]

Thanks so much, you have really helped me

[rahulk]

thank you so much for explaining this it saved me for the test

[repCanada]

when the $900 dollar loan is first created at 4:38, you never mentioned the corresponding $900 in liabilities created (ie the money that the recipient of the loan now has in their possession). Can you explain this?

[ilredeldeserto]

What is the Capital Buffer?
I'm reading the paper, by Gai and Kapadia, "Contagion in financial networks" and it says that the capital buffer is the difference between assets and liabilities, in particular: capital buffer = interbank assets + loans - deposits - interbank liabilities. But how could there be a difference if the balance sheet, as the lesson says, is always zero (assets = liabilities).
Is it a silly question maybe?

[runthomas]

what about when a payment is made off a loan...eg a tenth of the loan value...how does that affect the asset and liability....nobody seems to know

[_blackheartemoji_]

So how do banks and financial institutions create money using T-accounts?

[carbymiks]

Thanks for the video! I have a question. What if the RR became negative? does that happen?

[ricklovall]

And then loan payments start coming in....