20. To avoid insolvency, regulators decide to provide the bank with $25 million in bank capital. However, the bad news about the mortgages is featured in the local newspaper, causing a bank run. As a result, $30 million in deposits is withdrawn. Show the effects of the capital injection and the bank run on the balance sheet. Was the capital injection enough to stabilize the bank? 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 ? The effect of the capital injection and bank run are shown in the balance sheet below: Assets Liabilities m Excess Reserves $26 million Bank Capital $ 9 million Loans $75 million The bank now has a 9/109 0 8.3% capital ratio; it is again well capitalized. With the run on the bank, checkable deposits fall to $100 million. In order to have a bank capital ratio of 10%, it must be the case that 0.10 I] BC/(lOO 0 BC ), where BC represents the required level of bank capital. Solving for BC yields a level of bank capital needed of $11.1 million. Thus, the regulators would need to inject an additional $2.1 million to reach a 10% capital ratio