Question 29 (12 points) Bank regulations stipulate that the asset to equity ratio cannot exceed 24; i.e. EM S 24. The initial balance sheet (in millions) for Layman Bros bank is as follows: tinder assets: Reserves -100, Securities -100, Mortgages - 200. Loans - 800 Under liabilities: Deposits - 1000, Bank bonds -100, Bank capital - ?? a. (2 marks) What is bank capital? Does it satisfy the regulation? Layman receives 10% return on Securities, Mortgages and Loans. It makes zero return on Reserves. It pays out 7% on Deposits and Bank bonds. It pays no taxes. b. (2 mark) What is Layman's return on assets and return on equity? CA2 marks) Layman maximizes its return on equity by buying more mortgages financed by bank bonds. Redraw the balance sheet under the regulation EM 24. (Use the same format provided to you; Under assets: .... and Under liabilities ..) d. (2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the US Fed purchases 100 million mortgages from Layman. What is the change in the US Fed's balance sheet and the monetary base? e marks) Retum to the original balance sheet for Layman given in part (). Suppose the mortgages suffer a loss of 150 million How much does the bond holder lose? What will be the bank capital? 1/2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the loans suffer a loss of 300 million How much do the depositors and bond holders lose? Question 29 (12 points) Bank regulations stipulate that the asset to equity ratio cannot exceed 24; i.e. EM S 24. The initial balance sheet (in millions) for Layman Bros bank is as follows: Under assets: Reserves -100, Securities - 100, Mortgages - 200. Loans - 800 Under liabilities: Deposits - 1000, Bank bonds - 100, Bank capital - ?? a. (2 marks) What is bank capital? Does it satisfy the regulation? Layman receives 10% return on Securities, Mortgages and Loans. It makes zero return on Reserves. It pays out 7% on Deposits and Bank bonds. It pays no taxes. b. (2 mark) What is Layman's return on assets and return on equity? c.(2 marks) Layman maximizes its return on equity by buying more mortgages financed by bank bonds. Redraw the balance sheet under the regulation EM 24. (Use the same format provided to you; Under assets: ... and Under liabilities: ...) d. (2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the US Fed purchases 100 million mortgages from Layman. What is the change in the US Fed's balance sheet and the monetary base? e.(2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the mortgages suffer a loss of 150 million. How much does the bond holder lose? What will be the bank capital? [(2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the loans suffer a loss of 300 million. How much do the depositors and bond holders lose? Question 29 (12 points) Bank regulations stipulate that the asset to equity ratio cannot exceed 24; i.e. EM S 24. The initial balance sheet (in millions) for Layman Bros bank is as follows: tinder assets: Reserves -100, Securities -100, Mortgages - 200. Loans - 800 Under liabilities: Deposits - 1000, Bank bonds -100, Bank capital - ?? a. (2 marks) What is bank capital? Does it satisfy the regulation? Layman receives 10% return on Securities, Mortgages and Loans. It makes zero return on Reserves. It pays out 7% on Deposits and Bank bonds. It pays no taxes. b. (2 mark) What is Layman's return on assets and return on equity? CA2 marks) Layman maximizes its return on equity by buying more mortgages financed by bank bonds. Redraw the balance sheet under the regulation EM 24. (Use the same format provided to you; Under assets: .... and Under liabilities ..) d. (2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the US Fed purchases 100 million mortgages from Layman. What is the change in the US Fed's balance sheet and the monetary base? e marks) Retum to the original balance sheet for Layman given in part (). Suppose the mortgages suffer a loss of 150 million How much does the bond holder lose? What will be the bank capital? 1/2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the loans suffer a loss of 300 million How much do the depositors and bond holders lose? Question 29 (12 points) Bank regulations stipulate that the asset to equity ratio cannot exceed 24; i.e. EM S 24. The initial balance sheet (in millions) for Layman Bros bank is as follows: Under assets: Reserves -100, Securities - 100, Mortgages - 200. Loans - 800 Under liabilities: Deposits - 1000, Bank bonds - 100, Bank capital - ?? a. (2 marks) What is bank capital? Does it satisfy the regulation? Layman receives 10% return on Securities, Mortgages and Loans. It makes zero return on Reserves. It pays out 7% on Deposits and Bank bonds. It pays no taxes. b. (2 mark) What is Layman's return on assets and return on equity? c.(2 marks) Layman maximizes its return on equity by buying more mortgages financed by bank bonds. Redraw the balance sheet under the regulation EM 24. (Use the same format provided to you; Under assets: ... and Under liabilities: ...) d. (2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the US Fed purchases 100 million mortgages from Layman. What is the change in the US Fed's balance sheet and the monetary base? e.(2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the mortgages suffer a loss of 150 million. How much does the bond holder lose? What will be the bank capital? [(2 marks) Return to the original balance sheet for Layman given in part (a). Suppose the loans suffer a loss of 300 million. How much do the depositors and bond holders lose
