Question

To avoid insolvency, regulators decide to provide the
bank with $25 million in bank capital. However, the
bad news about the mortgages is featured in the local
newspaper, causing a bank run. As a result, $30 million
in deposits is withdrawn. Show the effects of the capital
injection and the bank run on the balance sheet. Was
the capital injection enough to stabilize the bank? If the
bank regulators decide that the bank needs a capital
ratio of 10% to prevent further runs on the bank, how
much of an additional capital injection is required to
reach a 10% capital ratio?

Answer 1

Solution:

Given that: