a. What is State Banks leverage ratio?

b. Suppose that some of State Banks securities were bonds whose value was linked to risky

subprime mortgages. When some homeowners could not pay their monthly mortgage

payments, the value of these bonds fell. Suppose the value of State Banks securities fell by

$50. What is the percentage reduction in the value of its assets? What is the percentage

reduction in the value of its capital?

c. Now suppose that some of State Banks car loans could not be repaid because the car

owners lost their jobs during the recession. If the value of State Banks loans also fell by

$30, what is the value of State Banks capital now (that is, after both falls in value)?

d. In order to ensure that banks can pay their depositors, bank regulators require banks to

maintain a minimum ratio of bank capital to assets, called capital requirements. Suppose

that State Banks capital requirement was 6%. Did the bank meet this requirement in part

c? Show your calculation

3. Suppose State Bank's initial balance sheet is as follows Assets Liabilities and Capital/Owners' Equity Reserves Loans Securities $100 Deposits $1200Debt $700 Capital $800 $1100 $100 (Owners Equity)