How does each of the following developments affect banks’ desired equity ratios? Explain. a. An increase...

How does each of the following developments affect banks’ desired equity ratios?

Explain.

a. An increase in OBS activities.

b. A shift from C&I lending to real estate lending.

c. A shift from fixed-rate to floating-rate loans.

d. An increase in securitization.

Solutions

Expert Solution

A. Increase in the off balance sheet activities for the bank would be leading to decrease in the desired equity ratio is because the bank will be taking risk in association with getting exposed to off balance sheet items.

B. Shifting from commercial and industrial lending to real estate lending will be that the bank will be having a higher desire for the equity ratio because it would be leading to continuous out flow and it can impact the liquidity.

C. shifting from fixed rate to floating rate loans will be meaning that the bank will be having a lower appetite for equity ratios because it will be trying to have a lower equity as most of the interest risk will be eliminated.

D. When there will be an increase in the securitization then equity ratio of the banks shall be increased .

jeff jeffy answered 1 year ago

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