1. Assume the following balance sheet for a commercial bank: Assets Liabilities Reserves 50 Demand Deposits 500 Government Securities 100 Time Deposits (CD5) 250 Loans 850 Savings Deposits 170 Capital 80 The reserve requirement is 10% of demand deposits. a. What is the bank's leverage ratio? b. Suppose the bank's return on assets is 3%. What is the bank's return on equity? c. Suppose the bank wants to decrease the amount of its capital. Explain one way that it could do this. d. Suppose the value of loans falls to 800 because some of the borrowers default on their payments. Show the effect that this will have on the balance sheet. e. Suppose the value of the bank's assets decline by x percent. What is the maximum value of x that the bank can sustain and still remain solvent? f. Which of the bank's asset categories usually earns the highest rate of return? 2. Banks require potential borrowers to undergo a credit check. Is the bank trying to reduce moral hazard or adverse selection? Explain briefly. 3. Explain why requiring collateral reduces moral hazard by borrowers. 4. Use your understanding of the concept of adverse selection to explain how the buyers of life insurance differ from the population at large. 5. What type of regulation was negotiated by the Basel Accord? 6. The presence of insurance creates moral hazard. Explain clearly the moral hazard created by Federal deposit insurance. 7. Which regulator approves charters of new nationally chartered banks? 8. Why did farmers support the candidacy of William Jennings Bryan in 1896? 9. Read "The Wizard of Oz\" in the readings section of blackboard. What did the rusted joints of the tin man signify? 10. No national currency was issued between 1787 and 1861. Why? 11. Why did silver coins circulate before 1849 but not between 1849 and 1861? 12. What is the name of the banking legislation that created FSOC? 13. How many members of the FOMC are confirmed by the U.S. Senate? 14. Go to the website federalreserve.gov/monetarypollicy/fomccalendars.htm to answer the following questions. a. When is the next scheduled FOMC meeting? b. Have there been any dissents at FOMC meetings this year? If so how many, and at which meeting? Bonus. Read the following passage about the First Bank of the United States from the book Naked Money and answer the following questions. 1. Why did Thomas Jefferson dislike the First Bank of the United States? 2. What politician was most responsible for ending the Second Bank of the United States