Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A bank has the following asset and liability portfolios. Assets Liabilities and Capital Firm (in billion $) Industry Firm (in billion $) Industry Required reserves

A bank has the following asset and liability portfolios. Assets Liabilities and Capital Firm (in billion $) Industry Firm (in billion $) Industry Required reserves 3 4% Demand deposits 25 15% Commercial loans NOW accounts 8 10% Floating-rate 30 20% MMDAs 17 20% Fixed-rate 20 11% CDs Total 50 31% Short-term 5 35% Consumer loans 10 20% From 1 to 5 years 30 10% Mortgages Total 35 45% Floating-rate 10 7% Long-term bonds 5 3% Fixed-rate 5 3% Capital 10 7% Total 15 10% Treasury securities Short-term 2 7% Long-term 3 8% Total 5 15% Long term Corporate securities High-rated 0 5% Medium-rated 10 5% Total 10 10% Long-term municipal securities High-rated 0 3% Moderate-rated 0 2% Total 0 5% Fixed assets 7 5% Total Assets 100 100% Total liabilities and capital 100 100% a) Calculate the banks interest rate gap and gap ratio. Based on the numbers, what interest rate risk does the bank face? How can the bank reduce its interest rate risk? b) Evaluate the banks liquidity, capital adequacy, asset quality based on the balance sheet. For any type of bank risk that appears to be higher than the industry, explain how the balance sheet could be restructured to reduce the risk.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

How To Beat The IRS At Its Own Game Strategies To Avoid And Fight An Audit

Authors: Amir D Aczel

1st Edition

1568580487, 978-1568580487

More Books

Students also viewed these Accounting questions

Question

What is the role of the Joint Commission in health care?

Answered: 1 week ago