The following questions apply to the following simplified bank balance sheet

-The Bank above suffers a 50% fall in the value of its loans.It is now
A) in a position where none of its creditors will get any of their money back
B) effectively bankrupt and depositors stand to lose money
C) effectively bankrupt but depositors can be paid off
D) effectively bankrupt but depositors and subordinated debt holders can be paid off
E) still a viable enterprise but with dramatically reduced capital

Question

The following questions apply to the following simplified bank balance sheet
 
-The Bank above suffers a 50% fall in the value of its loans.It is now
A) in a position where none of its creditors will get any of their money back 
B) effectively bankrupt and depositors stand to lose money 
C) effectively bankrupt but depositors can be paid off 
D) effectively bankrupt but depositors and subordinated debt holders can be paid off 
E) still a viable enterprise but with dramatically reduced capital

Quizplus · Accepted Answer

A 50% fall in the value of the loans would significantly reduce the bank's assets, putting it in a position where it may not be able to meet its obligations to depositors and creditors. Hence, the bank is considered effectively bankrupt, and depositors stand to lose money.

The Following Questions Apply to the Following Simplified Bank Balance