Balance Sheet for United Bank (thousands of dollars)

ASSETS LIABILITIES (plus capital)

Reserves $10,729 Transactions Deposits $47,678

Securities $67,391 Non-transactions Deposits $180,050

Loans $172,421 Bank Borrowing $2,100

Other Assets $2,459 Other Liabilities $8,500

Bank Capital $14,672

Total $253,000 Total $253,000

1.. Suppose that regulators imposed an 8% reserve requirement and a 2.5% leverage ratio on this bank. Is this bank meeting each of these requirements?

Show relevant calculations, including this bank’s leverage ratio, required reserves, and excess reserves.

2. Suppose that United Bank earns $7,000 in after-tax profit. Compute the bank’s return on assets and return on equity.

3. Using T-accounts, show how each of the following would affect this bank’s balance sheet. You need only show the T-accounts, do not show the new balance sheet, just the T-account for each transaction individually. On your T-account, be sure to show which items are changing, by how much, and in what direction (+ or -).

a) A customer of United makes a $250 withdrawal from her checking account.

b) United Bank decides to issue a $40,000 loan. State any assumptions you are making about how United finances the loan.

c) Show one other way in which United Bank can issue the $40,000 loan, under a different set of assumptions.

d) Because of a housing crises, United Bank suffers a $22,000 loss in loans.

4. In 3d) above, is United Bank still solvent? How do you know?