Question
Consider a bank with the following balance sheet: Assets Liabilities Required reserves $10 million Checkable deposits $130 million Excess reserves $32 million Bank capital $18
Consider a bank with the following balance sheet:
Assets | Liabilities | ||||
Required reserves | $10 | million | Checkable deposits | $130 | million |
Excess reserves | $32 | million | Bank capital | $18 | million |
Loans | $70 | million |
Assume that required reserves are 8%. In order to avoid insolvency, regulators decide to provide the bank with $27 million in bank capital. Assume that 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 As a result, $35 million in deposits is withdrawn.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 below. (Round your responses to the nearest whole number.)
Assets | Liabilities | ||||
Required reserves | $ ??? | million | Checkable deposits | $ ??? | million |
Excess reserves | $ ??? | million | Bank capital | $ ??? | million |
Loans | $ ??? | million |
Was the capital injection enough to stabilize the bank? The bank now has a capital ratio of ?? %, and the bank is ( In dire capital position OR 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 is required to reach the 10% capital ratio? (Round your response to one decimal place.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started