As a result of loan write-offs,Bank A has to be liquidated by the regulators.The book value of the assets and liabilities of the bank is presented below (in millions of dollars).The market value of the loans has been estimated at $240 million.

$\begin{array}{lll}
\text { Loans(book value) } & \text {340 Insured Deposits }& \$200\
& \text { Urinsured Deposits} & \$100\
& \text { Equity} & \$ 40\
\end{array}$

What is the cost to the insured depositors if the insured depositor transfer resolution method is used by the regulators to resolve the bank failure?

Question

As a result of loan write-offs,Bank A has to be liquidated by the regulators.The book value of the assets and liabilities of the bank is presented below (in millions of dollars).The market value of the loans has been estimated at $240 million.

$\begin{array}{lll}
  \text { Loans(book value)  } & \text {340 Insured Deposits }&  \$200\
& \text { Urinsured Deposits} & \$100\
& \text { Equity} &  \$ 40\
\end{array}$
 
 What is the cost to the insured depositors if the insured depositor transfer resolution method is used by the regulators to resolve the bank failure?

Quizplus · Accepted Answer

The insured depositor transfer resolution method involves transferring the insured deposits to another bank, which assumes the responsibility of paying off the insured depositors. In this case, the insured deposits amount to $200 million, which is fully covered by the market value of the loans ($240 million). Therefore, there is no cost to the insured depositors.

As a Result of Loan Write-Offs,Bank a Has to Be