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2. Crosstown Bank is required by regulators to maintain a leverage ratio (equity/assets) of 9%. It has a 1.5% return on assets, and pays out
2. Crosstown Bank is required by regulators to maintain a leverage ratio (equity/assets) of 9%. It has a 1.5% return on assets, and pays out 40% of its earnings in dividends. a) What % growth rate of assets can CB sustain without issuing additional equity? (What is its internal capital generation rate?) b) If regulators tighten capital requirements to a 12% leverage ratio how fast can CB grow? c) If the required leverage ratio stays at 12%, and the ROA stays at 1.5%, what dividends payout rate will CB have to set if it wants to achieve a 10% growth rate? 2. Crosstown Bank is required by regulators to maintain a leverage ratio (equity/assets) of 9%. It has a 1.5% return on assets, and pays out 40% of its earnings in dividends. a) What % growth rate of assets can CB sustain without issuing additional equity? (What is its internal capital generation rate?) b) If regulators tighten capital requirements to a 12% leverage ratio how fast can CB grow? c) If the required leverage ratio stays at 12%, and the ROA stays at 1.5%, what dividends payout rate will CB have to set if it wants to achieve a 10% growth rate
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