The leverage ratio and the asset of the bank.

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Chapter 21, Problem 4CQQ

To determine

The leverage ratio and the asset of the bank.

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A bank has a capital of $200 and a leverage ratio of 5. If the value of the bank's assets declines by 10 percent, then its capital will be reduced to a. $100. b.$150. c. $180. d. $185.

Consider the following scenario for a bank. It has $200 in reserves, $800 in loans, $400 in securities, $1200 in deposits, and S100 in debt. a) Calculate the bank's capital. b) Calculate the bank's leverage ratio. c) Suppose there is a stock market boom, so that the bank's assets increase by 2 percent. What is the percentage change in the bank's capital? What is the change in the bank's capital in dollars? d) Suppose that, instead of stock market boom, some borrowers default on their debt so that the bank's assets decrease by 2 percent. How much is now the bank's capital?

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