Question

Assume you are a bank manager. You are given the responsibility of reviewing your bank s liquidity position by top management, as reflected by balance sheet and income statement information. To do this, your assistant assembled the following financial data per your request:

	Metropolitan Bank			Peer Group of Banks
Financial Ratios (%)	2001	2002	2003	2001	2002	2003
Net income/total assets	0.8%	0.9%	1.1%	0.8%	0.9%	0.9%
Equity capital/total assets	5.5	5.7	6.0	5.6	5.7	5.9
Business loans/total assets	50	53	56	48	47	48
Home loans/total assets	10	9	8	12	13	13
Comsumer loads/total assets	9	8	6	10	9	9
Temporary investments/total assets	20	18	15	20	21	20
Core Deposits/total assets	55	50	45	53	55	54
Volatile liabilities/total assets	35	39	45	37	36	37

What does this information suggest?

Answer 1

Metropolitan Bank 2003 : Total loans / total assets = (56 + 8 + 6) / 100 = 70%

Metropolitan Bank 2002 : Total loans / total assets = (53 + 9 + 8) / 70 = 70%

Metropolitan Bank 2001 : Total loans / total assets = (50 + 10 + 9) / 69 = 69%

Peer group 2003 : Total loans / total assets = (48 + 13 + 9) / 100 = 70%

Peer group 2002 : Total loans / total assets = (47 + 13 + 9) / 100 = 69%

Peer group 2001 : Total loans / total assets = (48 + 12 + 10) / 100 = 70%

Metropolitan Bank 2003 : Total liabilities / total assets = (45 + 45) / 100 = 90%

Metropolitan Bank 2002 : Total liabilities / total assets = (50 + 39) / 100 = 89%

Metropolitan Bank 2001 : Total liabilities / total assets = (55 + 35) / 100 = 90%

Peer group 2003 : Total liabilities / total assets = (54 + 37) / 100 = 91%

Peer group 2002 : Total liabilities / total assets = (55 + 36) / 100 = 91%

Peer group 2001 : Total liabilities / total assets = (53 + 37) / 100 = 90%

As the ratios of Metropolitan Bank are almost the same as the peer group, we can say that the liquidity position is not different from the industry peer group.