(a ) Solomon Bank has the following balance sheet (in millions). This is the base case.

Assets	Amount	Liabilities	Amount
Cash	100	Deposits	4000
Securities	1000	Other liabilities	500
Loans	4000	Equity	600
Total Assets	5100	Total Liabilities & equity	5100

The Banks manager encounters a liquidity challenge when depositors withdraw $750 million.

1. If the asset conversion (stored liquidity) method is used with the aim of maintaining current the cash balance, how does the balance sheet appear after the transaction?
2. If liability management is used to cover the deposit drain, how does the balance sheet appear after the transaction?
3. What are the implications for the manager in each case and which method would you recommend she utilize?

(b) Instead of the above, the manager encounters a liquidity challenge when her loan officers have $200 million in loans they wish to make.

(i) if the asset conversion (stored liquidity) method is used with the aim of maintaining current the cash balance, how does the balance sheet appear after the transaction?

(ii) If liability management is used to cover the deposit drain, how does the balance sheet appear after the transaction?

1. What are the implications for the manager in each case and which method would you recommend she utilize?