2. Assets

Liabilities

Required Reserves

$10 million

Checkable Deposits

$120 million

Excess Reserves

$51 million

Bank Capital

$ 11 million

Loans

$70 million

Later that day, terrible news hits the mortgage markets, and mortgage rates jumped. Bank regulators force ABC to sell its mortgages to recognize the fair market value. As a result, ABCs balance sheet looks as follows:

Assets

Liabilities

Required Reserves

$10 million

Checkable Deposits

$125 million

Excess Reserves

$49 million

Bank Capital

$ 11 million

Loans

$55 million

To avoid insolvency, regulators decide to provide the bank with $15 million in bank capital. The bad news about mortgages is featured in the local newspaper, causing a bank run. As a result, $40 million in deposits is withdrawn.

a. Show the effects of the capital injection and the bank run on the balance sheet.

b. Was the capital injection enough to stabilize the bank?

c. If the bank regulators decide that the bank needs a capital ratio of 10% to prevent further runs on the bank, how much of an additional capital injection is required to reach a 10% capital ratio?

2. Assets Required Reserve $10 milion Excelere $51 million Loans STO milion Liabilities Checkable Deposit Bank Capital 5120 min $11 min Later that day terrible news wa tha mongapa mare, and mortgage rates jumped Bank regulators force ABC to set ita momgaper to recognize the fair market value. As a result A3Cs balance sheet looks as follows: Required 310 milion Beves 40 milion Loans 35 milion Liabilities Checkable Opole Bank Capital 3125 Million -511 milion To woid indelvency regulatorio rovide the bank with 315 million in Dank capital. The badwabout mortgages atured in the local newspaper causing bank tun Atat 50 million in deposits is within Show the effects of the capital injection and the banks on the balance sheet was the capital injection ensugh to be the bank if the bank regulators decide that the bankda capital ratio of 10% to prevent further runs on the bank how much of animal capital injection is required to reach a 10% capital