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2. Below are balance sheets for two different banks. Answer the following questions about this: High Capital Bank Assets MBS Securities $100 million Liabilities Loans

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2. Below are balance sheets for two different banks. Answer the following questions about this: High Capital Bank Assets MBS Securities $100 million Liabilities Loans from other banks $50 million Bank capital ? Low Capital Bank Assets MBS Securities $100 million Liabilities Loans from other banks $90 million Bank capital ? (a) Determine the amount of Capital (i.e. Equity) each bank has. (b) For a given level of profits on their Assets, which Bank will have the higher ROE (Return on Equity)? Explain. (c) Construct an example to show the advantages of Low Capital Bank's position. (d) Construct an example to show the advantages of High Capital Bank's position

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