The Bank of Your Dreams has a simple balance sheet. The figures are in millions of dollars as follows:

Although the balance sheet is simple, the bank€™s manager encounters a liquidity challenge when depositors withdraw $500 million.
a. If the asset conversion method is used and securities are sold to cover the deposit drain, what happens to the size of Bank of Your Dreams?
b. If liability management is used to cover the deposit drain, what happens to the size of Bank of YourDreams?

Transcribed Image Text:

Assets Liabilities and Equity Cash $4,000 S 100 Deposits 1,000 Other liabilities 4,000 Equity 5,100 Total liabilities and equity 5,100 500 ecurities Loans Total assets 600 CH2