i.Due to uncertainty in the economy, the bank estimates that there is a potential decrease in demand deposits. Discuss and indicate the potential impacts on the banks overall assetliability status.

ii. Does the bank have sufficient liquid capital to cushion any unexpected losses in accordance to the Basle III requirement? (ignore cyclical buffer requirement)

PART A The book value of MARINE BAY BANK's balance sheet is listed below. The current market yield for the securities is in parentheses. The amounts are in millions. Asset Liability & Equity Cash 55 Demand deposits 300 6 month bills (4.25%) 50 Savings accounts (2.0%) 205 2 year personal fixed rate loan at 100 3 month CD (2.50%) 150 6.50% 3 year T bills (4.85%) 100 9 months CDs (3.85%) 150 3 year 5.5% semi-annual coupon 90 1 year term deposit (4.0%) 520 T-notes (5.25%) 5 year 6.2% semi-annual coupon 100 2 year term deposits (4.30%) 200 T-notes (5.75%) 5 year personal loan (11.5%, 350 repriced yearly) 5 year bond 8.0% annual coupon 150 5-year bonds at 6.75% 250 issued by Spanish government with semiannual interest, balloon rating credit rating B payment 20-year bonds at 7.5% 250 interest, balloon payment 10 year commercial loan (12.25% 730 repriced 6 months) Subordinate notes: 15-year commercial loan at 10% 220 3-year fixed rate (5.65%) 230 interest (repriced monthly) 20-year sovereign bonds 12.0% 150 6-year fixed rate (6.00%) 150 annual coupon issued by Cambodian government with BB rating Ordinary Equity 20 20-year mortgages at 8.5% interest 390 Preference shares 20 (LVR 65%, no mortgage insurance), balloon payment Retained Earnings 40 Total Assets 2485 Total liability and equity 2485