Question

Suppose the bank makes bad loans to the tune of $5m, show and explain why the bad loans will alter your pro forma balance sheet. Briefly explain why Federal regulators may or may not close the bank

Answer 1

(NPA) is a banking industry term for a ‘bad loan,  for example one that has not been reimbursed inside the specified time, or where the booked installments are financially past due. If it is turned out to be bad loan, you can write off the loan amount by creating the addional reserve into the balance sheet, it will affect the net position of the balancesheet, Bank holds are the money essentials that must be kept close by budgetary establishments so as to meet national bank prerequisites. The bank can't loan the cash yet should keep it in the vault, nearby or at the national bank, so as to meet any huge and startling interest for withdrawals. if Federal regulators found that the bank is not maintaining the regulation then may close the bank.