Question: 5. Below are balance sheets for two different banks. Answer the following questions about this: High Capital Bank Assets Liabilities Reserves. $10 million Deposits $90

5. Below are balance sheets for two different banks. Answer the following questions about this:

High Capital Bank

Assets Liabilities

Reserves. $10 million Deposits $90 million

Loans $90 million Bank capital $10 million

Low Capital Bank

Assets Liabilities

Reserves $10 million Deposits $96 million

Loans $90 million Bank capital $ 4 million

(a) If current profits are $800,000 for each bank, what is the Return on Equity (ROE) for each bank?

(b) If the required reserve ratio is currently 10%, how much in excess reserves does each bank have?

(c) Suppose that the value of each banks loans decreases by $5 million. Are both banks still solvent?

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