Setup: one central bank (CB), two commercial banks A and B, and one
person x. No reserve requirements or capital requirements and everyone's
balance sheet initially clear (empty).
Initial balance sheets (for CB, A, B, and x):
CB, A, B, x
| Assets |
Liabilities |
| $0 |
$0 |
Balance sheets after x takes a $100 loan from A:
Bank A
| Assets |
Liabilities |
| $100 loan to x |
$100 deposit for x |
Person x
| Assets |
Liabilities |
| $100 deposit at A |
$100 borrowing from A |
Balance sheets after x transfers deposit from Bank A to Bank B:
Central Bank
| Assets |
Liabilities |
| $100 reserve overdraft for A |
$100 reserve deposit for B |
Bank A
| Assets |
Liabilities |
| $100 loan to x |
$100 overdraft at CB |
Bank B
| Assets |
Liabilities |
| $100 reserves |
$100 deposit for x |
Person x
| Assets |
Liabilities |
| $100 deposit at B |
$100 borrowing from A |
Balance sheet after Bank A borrows $100 of reserves from Bank B and
repays the CB the overdraft amount by the end of the day (note: Bank A
could have borrowed from any other bank, the money markets, the Central
Bank's discount window or by attracting transfer deposits, but I've
chosen to show the case where it borrows from Bank B):
Central Bank
| Assets |
Liabilities |
| $0 |
$0 |
Bank A
| Assets |
Liabilities |
| $100 loan to x |
$100 reserve borrowings from B |
Bank B
| Assets |
Liabilities |
| $100 loan of reserves to A |
$100 deposit for x |
Person x
| Assets |
Liabilities |
| $100 deposit at B |
$100 borrowing from A |
