1) Consider a balance sheet for Bank ABC $50,000 in mortgage loans, $30,000 in commercial loans, $10,000 in securities, $10,000 in reserves, with$90,000 in deposits, and bank capital of $10,000. The desired reserve ratio is 10%. Fill the balance sheet with the above given information. a. Calculate the traditional leverage ratio. Is the bank well capitalized? b. Calculate the risk weighted capital ratio. Is this bank fulfilling the Basel capital requirement? c. Suppose there is a bank run and Bank ABC sees 50% of its deposits withdrawn. Show the effect of this bank run on the balance sheet of the bank. [Hint: In order to meet the withdrawal requests bank will initially let go of reserves, then liquidate its securities and lastly if need be will sell its loans]. d. Based on this example explain the use of government safety nets to avoid bank panics and bank runs.

2) a. Using the market for reserves show how Bank of Canadas standing liquidity facilities at the bank rate (ib) provide a ceiling for fluctuations in the overnight rate. b. Using the market for reserves to show the effect of a net government receipts from the public on the overnight funds rate, level of non-borrowed and borrowed reserves. [Hint: When government receives money from the public which is paid by writing cheques on peoples deposits which curve will be effected and in which direction]