Question 4

(A) Answer the following parts (i) and (ii).

(i) A commercial bank has the following balance sheet below. The reserve requirement is 8% and this bank is trying to meet exactly the minimum reserve requirement by selling off its loans. Reflecting this change, calculate and show the new balance sheet for this bank. [10%]

(B) Explain in detail what is (i) the Regulatory Capital and (ii) Economic Capital, and compare them. [15%].

(ii) Calculate the risk-weighted assets considering a bank with the following balance sheet. Show all your work. [15\%]