Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a bank with the following balance sheet: Assets Desired reserves $10 Excess reserves $17 Loans $80 million million million Liabilities Chequable deposits $120 million

image text in transcribed

Consider a bank with the following balance sheet: Assets Desired reserves $10 Excess reserves $17 Loans $80 million million million Liabilities Chequable deposits $120 million Bank capital - $13 million Assume that desired reserves are 8%. To avoid insolvency, regulators decide to provide the bank with $21 million in bank capital. However, the bad news about mortgages is featured in the local newspaper, causing a bank run. As a result, $35 million in deposits is withdrawn. Show the effects of the capital injection and bank run on the balance sheet. (Round your responses to the nearest whole number.) Assets Desired reserves $7 million Excess reserves S6 million Loans $ 80 million Liabilities Chequable deposits 585 Bank capital 58 million million Was the capital injection enough to stabilize the bank? The bank now has a capital ratio of 8.6%, and the bank is well capitalized (Round your response to one decimal place.) If the bank regulators decide that the bank needs a capital ratio of 10% to prevent further runs on the bank, how much of an additional capital injection would be required to reach a 10% capital ratio? Bank regulators need to inject an additional $ million to reach a 10% capital ratio. (Round your response to one decimal place.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

25.0 m C B A 52.0 m 65.0 m

Answered: 1 week ago