a) Suppose the bank is reconsidering to generate more profit. They want to restructure their assets. After the restructuring, they want to have 10% second reserve, 40% residential mortgage, 30% corporate loans or securities, and 20% inter-bank loan to OECD banks. In addition, there is $600 million of off-balance activities for the bank. What is the risk-weighted capital ratio?

Assets		Liabilities
Required Reserve	$110.00	Checkable Deposit	$1,000
Excess Reserves	$0.00	Capital	$100
Loans	$790
T-bills	$200
TOTAL	$1,100		$1,100

b) Can this bank be classified as a well-capitalized bank?

c) Suppose the T-bill yield 1.44%, the Libor is 1.83%, the average residential mortgage rate is 5.5%, and the average corporate loan is 7%. What is the new ROE? Assume the new structure yield a profit margin of 13%.

d) Recently, 20% of checkable deposit is still in checking accounts. 40% of them become saving accounts, and 40% of them become CDs. If interest will increase by 2%, what is the financial result for the bank?

e) If there is terrible news hits the mortgage markets, and mortgage rate jump by 6%, which cause the value of the residential mortgage drop by 25%. What does the bank’s balance sheet look like? What will happen to this bank?

Answer rating: 100% (QA)

The Riskweighted capital ratio is also called as Capital Ade... View the full answer