A bank has the following balance sheet for 2020.Also shown are the respective interest rates:

Assetsamount ($MM)rate, %

Business Loans506

Corporate Bonds265

Government Bonds182.5

Cash7

Real assets2

Liabilities

Demand Deposits360

Time Deposits451.1

Inter-Bank Borrowing161.25

Preferred Equity1

Common Equity5

Off-Balance Sheet Item

Of the business loans above, $10MM 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.

IISuppose 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 $2mm and uses the funds to make $2mm in new business loans.