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L 33. (a) Suppose that the loan portfolio of Bank A includes a $40m loan to an individual customer, and it is discovered that the

L 33. (a) Suppose that the loan portfolio of Bank A includes a $40m loan to an individual customer, and it is discovered that the customer will not be able to repay the loan in full. The bank now expects to recover only 75 per cent of the value of the loan. Show the impact of this on the balance sheet of Bank A. (b) Suppose there is a regulatory requirement that capital must be at least 5 per cent of the value of loans on the balance sheet. How much additional capital would Bank A need to raise to meet this requirement

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