Essay
A bank has $100 reserves, $10,000 loans, $500 securities, $9000 deposits, and $1400 debt.
a) Calculate the bank's capital.
b) Calculate the bank's leverage ratio.
c) Suppose the bank's securities are mainly mortgage-based bonds and a wave of mortgage defaults combined with a fall in the stock market reduces the bank's assets by 10 percent. What is the percentage and dollar-value change of the bank's capital? Is the bank solvent?
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a) Capital = Assets - Deposits - Debt = ...View Answer
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