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In the 'Choice and Consequence' box on 'Asset Price Fluctuations and Bank Failures, the authors discuss the relationship between the prices of things like oil
In the 'Choice and Consequence' box on 'Asset Price Fluctuations and Bank Failures," the authors discuss the relationship between the prices of things like oil and real estate and the solvency of lending institutions like banks. Consider the two scenarios below. For each of the following balance sheets, supply the missing entries and then answer the questions that follow. Assume that Securitas Bank is a large bank in the country of Hyponatremia. The bank's only assets and liabilities at the beginning of the year are given in the following balance sheet: Securitas Bank Balance Sheet Assets Liabilities and Stockholders' Equity Reserves and cash equivalents $ $ 38 570 Demand deposits Borrowing from other banks Stockholders' equity $ $ 380 95 Long-term investments Total assets Assume now that due to an economic downturn, the value the bank's long-term investments declines by 10%. Show the resulting situation on the Securitas Bank balance sheet: Securitas Bank Balance Sheet Assets Liabilities and Stockholders' Equity Reserves and cash equivalents $ 38 Dernand deposits Borrowing from other banks Stockholders' equity $ $ 380 95 Long-term investments Total assets Given that Securitas Bank is a large bank, the government may consider it too big to fail" since Given that Securitas Bank is a large bank, the government may consider it "too big to fail" since O A. it likely has influential friends in the highest levels of government. O B. it can sue the government on behalf of its many depositors. O c. its failure may harm the wider financial system and potentially the entire economy. OD. it pays significant taxes to the national treasury
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