Question
The Bank of Frank has the following on its balance sheet: Checkable deposits = 105, Deposits at the FED = 15, Vault cash = 5
The Bank of Frank has the following on its balance sheet: Checkable deposits = 105, Deposits at the FED = 15, Vault cash = 5 Savings deposits = 185, Loans to businesses = 80, home mortgages = 120, Discount loan from the FED = 15 and Treasury bills = 100 and nothing else other than capital. Domestic regulators often consider a bank to be well capitalized if the capital to asset ratio is greater than 5%. Is the Bank of Frank well capitalized with this criterion? Show your answer. Under the Basel Accord banks should have a risk-weighted capital to asset ratio of at least 8%. Is the bank of Frank meeting this requirement? Show your answer. (Basel Accord weights are 0% for reserves and govt bonds, 50% for mortgages, and 100% for loans to businesses.)
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