A bank has the following balance sheet for 2020. Also shown are the respective interest rates: rate. % 6 Assets amount (SMM) Business Loans SO Corporate Bonds 26 5 Government Bonds 18 Cash 7 Real assets 2 2.5 0 Liabilities Demand Deposits 36 Time Deposits 45 Inter-Bank Borrowing 16 1.1 1.25 1 Preferred Equity Common Equity 5 Off-Balance Sheet Item Of the business loans above, S10MM was drawn from a $35MM Credit Line. That is, assume the average amount of the Line drawn during the year is $10MM. The bank charges 0.25% for unused lines of credit. I Assume reserve requirement are 3% for demand deposits, 0% for time deposits. How much excess reserves does the bank have? TI Suppose capital requirements are: 8% for loans 4% for bonds with risk of default 4% for inter-bank lending 2.5% for undrawn credit lines A. Does the bank have enough capital? B. What if the capital requirement for loans increases to 10%? Which of the following will "cure" the deficiency - entirely, partially or not at all: 1. The bank issues new shares with a market value of S2mm and uses the funds to make $2mm in new business loans. 2. The bank issues $1mm in demand deposits and uses the funds to purchase Simm additional government bonds. 3. SSmm of the loans default (no capital is required for a defaulted loan that is written off). III A. Calculate Net Interest Margin for the year. B. The bank receives additional $200,000 in non-interest (fee) income during the year, and pays $1.5mm in labor compensation and other expenses for the year. What is its ROLY C. The bank is considering issuing enough equity to replace all its time deposits. If nothing else changes, what is the new NIM and the new ROE? What if it issues equity to replace half its time deposits? TV From a pure income perspective, would the bank prefer customers switch their time into demand deposits? What would the downside be? A bank has the following balance sheet for 2020. Also shown are the respective interest rates: rate. % 6 Assets amount (SMM) Business Loans SO Corporate Bonds 26 5 Government Bonds 18 Cash 7 Real assets 2 2.5 0 Liabilities Demand Deposits 36 Time Deposits 45 Inter-Bank Borrowing 16 1.1 1.25 1 Preferred Equity Common Equity 5 Off-Balance Sheet Item Of the business loans above, S10MM was drawn from a $35MM Credit Line. That is, assume the average amount of the Line drawn during the year is $10MM. The bank charges 0.25% for unused lines of credit. I Assume reserve requirement are 3% for demand deposits, 0% for time deposits. How much excess reserves does the bank have? TI Suppose capital requirements are: 8% for loans 4% for bonds with risk of default 4% for inter-bank lending 2.5% for undrawn credit lines A. Does the bank have enough capital? B. What if the capital requirement for loans increases to 10%? Which of the following will "cure" the deficiency - entirely, partially or not at all: 1. The bank issues new shares with a market value of S2mm and uses the funds to make $2mm in new business loans. 2. The bank issues $1mm in demand deposits and uses the funds to purchase Simm additional government bonds. 3. SSmm of the loans default (no capital is required for a defaulted loan that is written off). III A. Calculate Net Interest Margin for the year. B. The bank receives additional $200,000 in non-interest (fee) income during the year, and pays $1.5mm in labor compensation and other expenses for the year. What is its ROLY C. The bank is considering issuing enough equity to replace all its time deposits. If nothing else changes, what is the new NIM and the new ROE? What if it issues equity to replace half its time deposits? TV From a pure income perspective, would the bank prefer customers switch their time into demand deposits? What would the downside be
