Western Slope Bank must estimate its liquidity needs over the next 2 months. a. Using the following
Question:
Western Slope Bank must estimate its liquidity needs over the next 2 months.
a. Using the following information given for that period, estimate the bank's liquidity surplus or deficit:
Assets Total (mils.) Liquid (%)
Cash $ 266.25 12%
Loans:
Commercial 1,002.27 0%
Consumer 539.68 0%
Investments 1,317.45 45%
Other Assets 217.15 17%
Total $ 3,342.80
Funding Sources Volatile (%)
Deposits $2,228.38 10%
Other Liabs. 855.79 75%
Equity 258.63 0%
Total $ 3,342.80
b. Assume instead that 65 percent of Western Slope's investments are liquid and that 65 percent of nondeposit liabilities are volatile. Recalculate the liquidity surplus or deficit. Compare the advantages and disadvantages of this situation to that in part a.
Assets Total (mils.) Liquid (%)
Cash $ 266.25 12%
Loans:
Commercial 1,002.27 0%
Consumer 539.68 0%
Investments 1,317.45 65%
Other Assets 217.15 17%
Total $ 3,342.80
Funding Sources Volatile (%)
Deposits $2,228.38 10%
Other Liabs. 855.79 65%
Equity 258.63 0%
Total $ 3,342.80
c. Assume that West Coast Bank wants to be prepared for an increase in commercial loan demand of 1 percent and an increase in consumer loan demand of 2 percent during the next 2 months. Using the data in part a, recalculate the bank's liquidity surplus or deficit under these assumptions.
Assets Total (mils.) Liquid (%)
Cash $ 266.25
Loans:
Commercial 1,002.27
Consumer 539.68
Investments 1,317.45
Other Assets 217.15
Total $ 3,342.80
Funding Sources Volatile (%)
Deposits $2,228.38 10%
Other Liabs. 855.79 75%
Equity 258.63 0%
Total $ 3,342.80
Expert Answer:
SOLUTION To estimate the banks liquidity surplus or deficit we need to calculate the liquid and volatile amounts for assets and funding sources a Calculation of Liquidity Surplus or Deficit Assets Liq... View the full answer
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
