1. Specific information is available from a banks balance sheet to you as follows:

Assets ($ millions) Liabilities & Equity ($ millions)

Cash $ 2,000 Checking deposits $ 7,000

Deposits due from banks 750 Savings deposits 10,000

Net loans 12,000 Time deposits 6,000 Investment in securities 4,000 Federal Funds Purchased 1,000

Fixed assets 2,500 Total equity capital 3,000

Income Statement ($ millions)

Interest income on loans and securities $ 880

Interest paid on deposits 595

Non-interest income 80

Total non-interest expense 125

Provision for loan loss 25

Calculate the following. Show all your work to earn full credit.

Earnings spread ratio (13 points)

Which of the following is a true statement of those that opposed interstate banking:

1. Regulators who were against banks offering investment banking and insurance products
2. Increased number of mid-size banks
3. Drain deposit funds from the community and invest elsewhere
4. Lower prices for products and services

A bank that has a higher equity multiplier:

1. Is less likely to fail during economic downturn
2. Will tend to have higher liabilities
3. Is more likely to have lower liabilities
4. Is more likely to have a higher equity ratio

If market interest rates are declining, the best interest-sensitive gap position for a bank is to:

a. Have a positive interest-sensitive gap

b. Have an interest sensitive ratio of 1.0

c. Have a negative-interest sensitive gap

d. Have a positive relative interest-sensitive gap

The purpose of asset-liability management is to:

1. Minimize loan losses
2. Control a banks sensitivity to changes in market interest rates
3. Maximize non-interest income
4. Control banks operating expenses