) Lexington National Bank has the following basic T account at the end of its most recently completed fiscal year Lexington National Bank Assets Liabilities Reserves $20 million Variable rate CDs $150 Million Checkable deposits $90 Million Securities $50 million Loans Fixed rate $110 million Variable rate $70 million Bank Capital (Equity) $10 Million The bank had a net profit after taxes of $2 million in its most recently completed fiscal year and has paid a quarterly dividend of various amounts over the last several years As of fiscal year end, what was the banks return on assets, return on equity and its equity multiplier What is the banks leverage ratio Assume that all bank capital is tier 1 capital Is this bank well capitalized What actions could the bank take to further improve its leverage ratio Identify the negative effects of your proposed actions and explain who may be displeased with the bank as a result Conduct a basic gap analysis of this bank at fiscal year en Assume that of the assets, the securities and variable rate loans are rate sensitive Of the liabilities, assume that only the variable rate CDs are interest rate sensitive (i) Drawing from the information provided and the conclusions reached above, show what would have happened to bank profits if interest rates were 150 basis points higher over the year assuming that the T account remained fixed (i , taking no compounding into effect) Suppose you are the risk manager of this bank and you expect interest rates to increase in the coming year Explain the arrangement you might enter to limit the risk and describe its general structure

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Posted on Sep 09, 2024

.) Lexington National Bank has the following basic T-account at the end of its most recently completed fiscal year.

Lexington National Bank
Assets	Liabilities
Reserves $20 million	Variable-rate CDs $150 Million Checkable deposits $90 Million
Securities $50 million Loans Fixed-rate $110 million Variable-rate $70 million	Bank Capital (Equity) $10 Million

The bank had a net profit after taxes of $2 million in its most recently completed fiscal year and has paid a quarterly dividend of various amounts over the last several years. As of fiscal year-end, what was the banks return on assets, return on equity and its equity multiplier?

What is the banks leverage ratio? Assume that all bank capital is tier-1 capital. Is this bank well-capitalized?

What actions could the bank take to further improve its leverage ratio? Identify the negative effects of your proposed actions and explain who may be displeased with the bank as a result.

Conduct a basic gap analysis of this bank at fiscal year-en Assume that of the assets, the securities and variable-rate loans are rate-sensitive. Of the liabilities, assume that only the variable-rate CDs are interest-rate sensitive.

(i) Drawing from the information provided and the conclusions reached above, show what would have happened to bank profits if interest rates were 150 basis points higher over the year assuming that the T-account remained fixed (i., taking no compounding into effect).

Suppose you are the risk manager of this bank and you expect interest rates to increase in the coming year. Explain the arrangement you might enter to limit the risk and describe its general structure.