Consider the balance sheets of Bank A and Bank B. Assume that reserve requirements are 10 percent of transaction deposits and both banks have equal access to the interbank market and funds from the Federal Reserve.

Bank A (in millions)			Bank B (in millions)
Assets	Liabilities		Assets	Liabilities
Reserves $50	Transaction Deposits $200		Reserves $30	Transaction Deposits $200
Loans $920	Nontransaction Deposits $600		Loans $920	Nontransaction Deposits $600
Securities $250	Bank Capital $320		Securities $50	Bank Capital $100

Which bank do you think is at the greatest risk of insolvency?

	A) Bank A
	B) Bank B

What other information might you use to assess the risk of insolvency of these banks?

	A) Bank A has more securities than Bank B. Information regarding the interest-rate sensitivity of the assets and liabilities for both banks and their off-balance sheet commitments would be helpful in assessing the insolvency risk.
	B) Bank B has lower net worth than Bank A, and so has less of a cushion against interest-rate movements. Therefore, Bank B faces the greater risk of insolvency. Information regarding the interest-rate sensitivity of the assets and liabilities for both banks and their off-balance sheet commitments would be helpful in assessing the insolvency risk.
	C) Bank A has a larger holding of liquid assets. Information regarding the interest-rate sensitivity of the assets and liabilities for both banks and their off-balance sheet commitments would be helpful in assessing the insolvency risk.
	D) Because both banks have the same liabilities, it appears that they face the same insolvency risk. Information regarding the interest-rate sensitivity of the assets and liabilities for both banks and their off-balance sheet commitments would be helpful in assessing the insolvency risk.