How would the balance sheet look like

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Reference no: EM132970286

Suppose ABC Bank has the following balance sheet items: checkable deposit received of $525 million, bank capital of $100 million, mortgage loans made of $500 million, and securities purchased of $50 million.

a. Please prepare ABC Bank's balance sheet. (Note: There is no need to separate required reserves from excess reserves in the T-accounts). Given this balance sheet, suppose that the bank suffers a deposit outflow of $50 million. How would the balance sheet look like?

b. Does ABC Bank still meet its reserve requirement? Why or why not? If not, what options are available to the bank to keep it from failing? List at least three options in preferential order (1,2,3,4) with 1 being the most preferred.

c. Suppose the bank receives a deposit of $100 million, show the effect of this deposit on the bank's balance sheet. Is the bank still illiquid? Why or why not?

d. Now suppose $150 million in bank loans became bad loans. When these loans have been written-off, how would the balance sheet look like? Is the bank still solvent? Why or why not?

Reference no: EM132970286

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