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The Bank 1 balance sheet is as follows: Bank 1 Assets (A) Liabilities (L) + Capital (EQ) Reserves $ 7.5 million Deposits $ 45 million
The Bank 1 balance sheet is as follows: Bank 1 Assets (A) Liabilities (L) + Capital (EQ) Reserves $ 7.5 million Deposits $ 45 million Loans $ 42.5 million Disc. Loans $ 12 million Bonds $ 10 million Bank Capital (EQ) $ 3 million Suppose that as the manager of the Bank 1, you have to make decisions about the appropriate amount of bank equity capital (EQ = A-L). Suppose that you expect a very poor economic situation ahead, so you are concerned that the bank has too little equity capital relative to assets. You conclude that the bank should decrease the equity multiplier [EM = A/(A-L)] (in other words increase the bank capital). - What are three potential actions you may undertake in order to decrease the equity multiplier? (Describe the actions and explain)
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