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A Bank has $100 million in capital, and $900 million of checkable deposit. The bank currently...

A Bank has $100 million in capital, and $900 million of checkable deposit. The bank currently maintains a total reserve of $100 million dollars, $200 million in T-bills, and rest in loans. A new corporate customer opens a checkable deposit account, and deposit $100 million.

1a. Please show the T-Account of the bank after the deposit?

1b. If the required reserve ratio is 10%, what is likely to happen?

1c. If the required rate for reserves increase to 11%, what should the bank do? How much can the bank lend out after the adjustment? Assume the bank want to maximize return.

1d. What is the equity multiplier?

1e. If the bank collects an average interest of 7.8% on their loan, and T-bill yield 1.44% return. What is the Return on Equity (ROE)? (Assume the profit margin is 8%)

1f. Suppose there is a reserve outflow of $ 20 million, and the reserve ratio is 11% for the bank. Assume the bank decides to borrow from the Fed to meet reserve requirement. How much they will borrow? Please also show the new the T-account.

1g. Suppose the bank is reconsidering to generate more profit. They want to restructure their assets. After the restructuring, they want have 10% second reserve, 40% residential mortgage, 30% corporate loans or securities, and 20% inter-bank loan to OECD banks. In addition, there is $600 million of off-balance activities for the bank. What is the risk-weighted capital ratio?

1h. Can this bank be classified as well capitalized bank?

1i. Suppose the T-bill yield 1.44%, the Libor is 1.83%, average residential mortgage rate is 5.5%, and average corporate loan is 7%. What is the new ROE? Assume the new structure yield a profit margin of 13%.

1j. Recently, 20% of checkable deposit is still in checking accounts. 40% of them becomes saving account, and 40% of them becomes CDs. If interest will increase by 2%, what is the financial result for the bank?

1k. If there is a terrible news hits the mortgage markets, and mortgage rate jump by 6%, which cause the value of the residential mortgage drop by 25%. What does the bank’s balance sheet look like? What will happen for this bank?

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