sell some of its securities

ABC National Bank
Assets	Liabilities & Capital

3. directly borrowing from Fed

ABC National Bank
Assets	Liabilities & Capital

4. Reducing its loan

First National Bank
Assets	Liabilities & Capital

4. Following tables show the balance sheets of ABC and XYZ banks.

ABC bank
Assets	Liabilities & Capital
Reserves $200m	Deposits $540m
Loans $380m	Bank capital $40m

XYZ bank
Assets	Liabilities & Capital
Reserves $200m	Deposits $500m
Loans $380m	Bank capital $80m

4. (a) If net profit of both ABC and XYZ banks are $20 million, then what would be the return of equity (ROE) of each bank? (5 points)

4. (b) Which bank should be considered as a desirable investment for the risk-averse equity investors and why? (5 points)

4. (c) If both banks lose $50 million from their loan assets, what will happen to their balance sheets? Complete the tables below. (5 points)

ABC bank

XYZ bank