Suppose that the First National Bank has the following balance sheet position and that the required reserve ratio is 20 percent.

Assets		Liabilities
Reserves	$25 million	Deposits	$100 million
Loans	$75 million	Bank Capital	$10 million
Securities	$10 million

1. If the bank suffers the deposit outflow of $6 million, what will its balance now look like? Show this by filling in the amounts in the following balance sheet:

Assets		Liabilities
Reserves		Deposits
Loans		Bank Capital
Securities

2. Suppose now the bank is hit with another $4 million deposit outflow. What will its balance sheet position look like now?

Assets		Liabilities
Reserves		Deposits
Loans		Bank Capital
Securities

a) Must the bank make an adjustment in its balance sheet?

b) Why or why not?

3. After selling off the securities to meet its reserve requirements, what will its balance sheet look like?

Assets		Liabilities
Reserves		Deposits
Loans		Bank Capital
Securities

4. If, after selling off securities, the bank is not hit by another $10 in withdrawals of deposits and it sells off all its securities to obtain reserves, what will the balance sheet look like?

Assets		Liabilities
Reserves		Deposits
Loans		Bank Capital
Securities

5. If the bank is now unable to call in or sell any of its loans and no one is willing to lend money to this bank, what will happen to the bank and why?

6. Using the beginning balance sheet for First National Bank and assuming that First National bank has a net profit after tax of $1,650,000

1. Calculate First National Banks Return on Assets (ROA)
2. Calculate First National Banks Equity Multiplier (EM)
3. Using the info in a and b, calculate First National Banks Return on Equity (ROE).