A Look at the Balance Sheets of the U.S. Banks

During the financial collapse of 2008, the problem of the banks was their balance sheet. Banks were highly leveraged compared to their equity. On average, the assets held by the banks was 10 times their equity. This means that a 10% decrease in asset value at constant liability levels could bankrupt the whole company.

The first problem was debt (liabilities on the balance sheets) and the solution was deleveraging. Banks needed to reduce the size of their assets and reduce the size of their liabilities. The second problem was liquidity and the solution was increasing reserve ratios. This article will summarize and analyze what happened during these 3 years after the financial collapse in 2008.