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You have the following information on the Bank of Morrisland as of 04/17/2020: it currently holds...

You have the following information on the Bank of Morrisland as of 04/17/2020: it currently holds a total of $250 million in checking account deposits. It has borrowed $20 million from the Federal Reserve as discount loans. It has raised another $80 million by borrowing through the REPO funding. It has also borrowed 100 million dollars through the overnights (Federal funds) market. The bank’s current net worth (bank capital) is 40 million dollars. The bank currently holds $100 million in treasury securities and another $100 million in municipal bonds. The bank has made $65 million loans to consumers and $75 million loans to corporations. The bank has made another $110 million loans in residential mortgages. The bank has also issued two commercial loan commitments to Superior Industries: one worth of $40 million to be honored on October 1, 2020 and another worth of $35m to be honored on January 1, 2021. Assume that the required reserve ratio is 10%.
a. (8 pts.) What does the bank’s balance sheet look like?
b. (4 pts.) If the bank has a return on assets of 2%, calculate its return on equity.
c. (8 pts.) What is the bank’s leverage ratio? Is it a well-capitalized bank? Is it a well-capitalized bank according to Basel Accord?
d. (6 pts.) Following a trouble in the mortgage market, the bank found that the present value of residential mortgages has declined to 70 million dollars. As a result, regulators forced the bank to sell these mortgages to recognize the fair market value. In the meantime, hearing the news depositors pull out 25 million dollars from the bank. What does the bank’s balance sheet look like? How do these events affect its capital position?
e. (4 pts.) Find out how much capital injection is required in this scenario so that the bank can reach a 10% capital ratio.

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ekkarill92 answered 1 year ago
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