ABC Bank has total checkable deposits of $100 million in its account. Its capital, including common stocks,
Question:
ABC Bank has total checkable deposits of $100 million in its account. Its capital, including common stocks, retained earnings, preferred stocks and subordinated debt is $10 million. The ratio of reserves requirement by the central bank is 8%. The bank invests in commercial loans with total loans value of $70 million.
Assets | $ million | Liabilities & Equity | $ million |
Commercial Loans | 70.00 | Deposits | 100.00 |
Reserves | 40.00 | Capital | 10.00 |
Total | 110.00 | Total | 110.00 |
The ratio of reserves requirement by the central bank is 8%.
hence, required reserves = total capital x 8% = 110 x 8% = $ 8.80 million
Since actual reserves = 40 > 8.80 million; hence ABC’s capital complies with Basel III capital accords
If ABC Bank above invests also in mortgage loans with total value of $5 million. Does ABC’s capital comply with Basel III capital accords? You must show your calculation
Expert Answer:
Particulars Amount million Bank capital 10 Deposits 100 Total amount with bank 110 Less Comme... View the full answer
