The Jaguar Bank of Indianapolis (JBI) starts operations on January 1, 2016, issuing equity amounting $ 150. JBI advertises an annual interest of 2% for its savings deposits, paid annually, and a $9 a year maintenance fee for each checking account. On the first day of operations, 3 customers open checking accounts with JBI and save a total of $1,000 in their checking accounts. The same customers save a total of $850 in their savings accounts. The bank lends $1,250 for 3 years at an annual interest rate of 4% and another $350 for 10 years at an annual interest rate of 8%. It also purchases treasury bills worth $200 which earns 1% per annum. JBI maintains the required reserve (10% of checking deposit balances) at the Fed and keeps the remaining liquidity in cash reserves. Federal Reserve pays no interest to the JBI reserve account. Nor does JBI on checking accounts of its customers. JBI operational expenses during its first year of operations are $ 70 and the corporate tax rate is 25%. Shareholders of JBI receive 10% dividends.

Requirement:

1.

Find the equity ratio and the risk-adjusted capital ratio (Basel II) and compare it with the regulatory requirements.

2.

Assume one of the clients who borrowed $ 350 for 10 years defaults and the bank sells the collateral to recover $ 300. Can JBI still comply with the capital adequacy requirements (ER and Risk-adjusted capital)