Apilia: Student Ouestion 20. Leverage and Insolvency Consider the following balance sheets of two banks. These two banks have equal amounts of assets but are leveraged differently. Assume that there is no regulatory capital requirement Balance Sheet of Arch Bank Assets Liabilities Outstanding Loans: $300,000 Deposits (Liabilities): $270,000 Capital (Net worth): $30,000 Total: $300,000 Total: $300,000 Balance Sheet of Medes Bank Assets Liabilities Outstanding Loans: $300,000 Deposits (Liabilities): $285,000 Capital (Net worth): $15,000 Total: $300,000 Total: $300,000 Which bank has a lower leverage ratio? Arch Bank O Medes Bank Suppose both banks' assets increase by 20% to $360.000, Assume that the liabilties of both banks remain the same. Arch Bank's capital increases by Therefore, if the value of assets is rising and liabilties do not change, a higher , and Medes Bank's capital increases by percentage increase in captal, leverage ratio results iin a addenivhanks.cealize that inansthew.made am.riskien Now sungose all the.tems.inthe.balagce.sheets af.hoth.haks rmtiam to their intial values