A commercial bank has checkable deposits of $880, loans of $842,reserves at $80 and capital...

A commercial bank has checkable deposits of $880, loans of $842, reserves at $80 and capital of $42. What is the maximum write down in the value of the bank's loans that will keep bank capital from falling below $20?

Group of answer choices

$22

$25

$34

$75

Expert Solution

Reserve ratio according to the figures = reserve/deposit = $80 / $880 = 0.09 or 9%

Loans that can be granted according to reserve ratio = $880 x 0.91 (91%) = $800(approx.)

But, the loans given in excess = $842 - $800 = $42

To keep bank capital from falling below $25, it has to write down = $42 – 20 = $22

Thus correct option is $22

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Rahul Sunny answered 2 years ago

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