Question

Consider a simple bank that has assets of $100, checking deposits of $80, and capital of​ $20. Recall from chapter 4 that checking deposits are liabilities of a bank. a) Complete the​ bank's balance sheet Assets Liabilities Bank Assets ______ Checking Deposits ____ Net Worth Capital _____

b) Now suppose that the perceived value of the​ bank's assets falls by $10. Find the new value of​ bank's capital.

c) What is the leverage ratio? Show your work.

d) Suppose the deposits are insured by the government.

Given the decline in the value of bank capital, do you think that the depositors should be concerned? Explain.

Answer 1