1. Consider a commercial bank, around 1973. What would each side of its balance sheet have looked like?

Commercial banks balance sheet in 1973 structure (in percentage)

Loans Securities Cash and cash equivalents Other assets 53.8 Demand deposit 18.9 Time and savings deposit 19.1 Other liabilities 8.1 Shareholder equity 100 31.7 51.5 11.3 5.5 100

2. Consider an investment bank, around 1973. What would each side of its balance sheet looked like? Investment banks balance sheet in 1973 structure (in percentage)
Securities Cash and cash equivalents Fixed assets Other assets 71.83 Short-term debt 2.01 Accounts payable 3.93 Other liabilities 22.23 Shareholder equity 100 77.72 8.27 9.86 4.15 100

3. What activities did Bear Stearns undertake? Was it a commercial bank or an investment bank? Bear Sterns had three main operating businesses : 1. Capital markets business which included brokerage services, market-making, and proprietary trading in both equities and fixed income. In addition, this business included investment banking services such as securities issuance and advice on mergers and acquisitions. 2. Global clearing services which included its prime brokerage business. As prime broker, it provided trade execution and securities clearing, custody, lending, and financing to hedge funds and broker dealers. 3. Wealth management which included Bear s Private Client Services group, which served high-net worth individuals, and Bear Stearns Asset Management (BSAM), which managed hedge funds and other investment vehicles. Bear Stearns invest heavily on mortgage and MBS, and also leverage heavily. Bearn Stearns is an investment bank.