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You are given the balance sheet of Star Bank below. Balance Sheet Assets Liabilities Cash $0 Deposits $45 Million Required Reserves $7 Million Borrowing from
You are given the balance sheet of Star Bank below. Balance Sheet Assets Liabilities Cash $0 Deposits $45 Million Required Reserves $7 Million Borrowing from other $20 Million banks Borrowing from $63 Million Loans the $15 Million Central Bank Buildings $50 Million Stockholders' equity $40 million Total $120 Million Total $120 Million Suppose there is a financial crisis and depositors withdraw $40 million from their deposits with Star Bank. Star Bank decides to cover the amount withdrawn by borrowing $20 million from other banks, and by making $20 million through selling buildings. Star Bank has to sell buildings at half their book value to make $20 million. Show Star Bank's balance sheet after all the events above have taken place. Use the table below. Balance Sheet Assets Liabilities Cash Required Reserves Deposits Borrowing from other banks Borrowing from the Central Bank Stockholders' equity Loans Buildings Total Total a) Does Star Bank become insolvent after all these events? b) What type(s) of liquidity management has Star Bank undertaken
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