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?

Question

Quizplus · Accepted Answer

The Answer of 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?

A Bank Has $100 Reserves, $10,000 Loans, $500 Securities, $9000