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3) Consider the following bank balance sheet Assets Liability+Equity Loans: 700 Stable Retail Deposits: 406 US Treasuries: 450 Other Retail Deposits: 300 Reserves: 200 Non-Operational

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3) Consider the following bank balance sheet Assets Liability+Equity Loans: 700 Stable Retail Deposits: 406 US Treasuries: 450 Other Retail Deposits: 300 Reserves: 200 Non-Operational Deposits: 300 Short Term Debt (Maturity=1 Day): 300 Equity: 44 A) What is the LCR of this bank? What is the Leverage Ratio of this bank? Use the outflow rates from slide 25 of the lecture to compute the LCR. B) Suppose that the bank comes upon an excellent opportunity to make a loan for $150 to a really well-run company with great business prospects. The bank wants to take some reserves and make the loan (assume the company borrowing the money uses another bank so lending the $150 will not change the bank's deposits). Can the bank do this? Why or why not? C) Suppose instead the bank decides that it wants to fund the loan by sourcing a new $150 in stable deposits and then make the loan. If the bank does this will it satisfy its LCR? Assuming the bank has a 3% minimum leverage ratio requirement, if it makes this transaction what happens to its leverage ratio? Can the bank fund the loan

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