The following questions apply to the following simplified bank balance sheet

-The Bank above suffers a 5% 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 5% 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 5% fall in the value of its loans does not necessarily mean the bank is bankrupt or that creditors and depositors will lose money. It indicates a reduction in capital, but the bank can still be a viable enterprise, albeit with reduced capital.

The Following Questions Apply to the Following Simplified Bank Balance