Calculate the bank’s capital to asset ratio before and after the agreements. Does the bank meet the minimum capital ratio of 4%?
Consider a bank with the following balance sheet:
| Assets | Liabilities & Capital | ||
| Required Reserves | $20 million | Checkable deposits | $250 million |
| Excess reserves | 48 million | ||
| T-bills
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Mortgage loans |
50 million
50 million |
||
| Commercial loans | $100 million | Bank capital | $18 million |
Assume the required reserve ratio is 8%. The bank enters into agreements to make loan commitments of $30 million to various commercial customers.
a) Calculate the bank’s capital to asset ratio before and after the agreements. Does the bank meet the minimum capital ratio of 4%?
b) Calculate the bank’s capital to risk-weighted asset ratio before and after the agreements.
