Canuder the following balance sheets of two banks. These two banis have equal amounts of assets but are leveraged dutferently. Assume that there is no regulptory capital requirement. \begin{tabular}{lccc} \hline \multicolumn{2}{c}{ Balance sheet of Arch Bank } \\ \hline \multicolumn{2}{c}{ Assets } & \multicolumn{2}{c}{ Liabilities } \\ \hline Outstending Loans: $200,000 & Deposits (liabilities): & $160,000 \\ & & Copital (Net worth): & $40,000 \\ Total: & $200,000 & Totalt & $200,000 \\ \hline \end{tabular} \begin{tabular}{lccc} \hline \multicolumn{3}{l}{ Balance sheet of Medes Bank } \\ Assets & \multicolumn{2}{c}{ Liabilities } \\ \hline Outstanding Losts & $200,000 & Depesits (Liabilities)! & $160,000 \\ & & Capital (Net worth) & $20,000 \\ Totali & $200,000 & Totalt & $200,000 \\ \hline \end{tabular} Which benk has a lower leverage ratio? Arch Eank Medes Gank Suppese both banks' assets increase by 25% to $250,000. Assume that the liabilities of both banks remain the same. Arch Bank's capital increases by and Medes Bank's capital increases by Therefore, if the value of assets is rising and liabilities do not change, a higher leverage ratio results in a percentage increase in capital. Now suppose all the items in the balance sheets of both banks return to their initiol values. Suddenly, banks realize that loans they made are risker than they thought, and the total value of their assets declines by 10% to $180,000. Again, assume that the liabilities of both banks remain the same Areh Bank's cepital decreases by and Medes Bank's capital decreases by Therefore, if the value of assets is falling, a higher leverage ratio means a percentage decrease in capital. Under this second scenario, which bank is closer to insolvency? Arch Bank Medes Bank