*(a) CBC Bank has $1,000,000 of checkable deposits, a required reserve ratio of 20 percent, and...
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*(a) CBC Bank has $1,000,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $400,000 in total reserves. The Chief Risk Officer (CRO) of CBC Bank is really concerned about existing market conditions, especially the probability of bank runs in the banking system. Calculate the maximum deposit outflow (in $) that CBC Bank can sustain without the CRO having to alter its balance sheet. Show all calculations.< (b) Part (b) is divided into three parts (i) - (iii):< (i) Suppose you are the newly appointed Chief Risk Officer (CRO) of Liberty National Bank. The bank has $200 million of assets which have an average duration of seven years and $185 million of liabilities which have an average duration of five years. The current interest rate is 5 percent annually. Conduct a duration analysis for the Liberty National Bank and show what will happen to the equity of the Liberty National Bank if interest rates suddenly rise by 4 percentage points. Show all calculations. < (ii) Based on your answer for (i), does Liberty National Bank face failure? As CRO, list three actions you could take to reduce the Liberty National Bank's interest-rate risk.< (Limit: 100 words)< (iii) As CRO of Liberty National Bank, you are looking at the differences between a "bail-out" and "bail-in" for failed banks, Describe two key differences between "bail-outs" and "bail- ins." Place citations at the end of the exam paper. *(a) CBC Bank has $1,000,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $400,000 in total reserves. The Chief Risk Officer (CRO) of CBC Bank is really concerned about existing market conditions, especially the probability of bank runs in the banking system. Calculate the maximum deposit outflow (in $) that CBC Bank can sustain without the CRO having to alter its balance sheet. Show all calculations.< (b) Part (b) is divided into three parts (i) - (iii):< (i) Suppose you are the newly appointed Chief Risk Officer (CRO) of Liberty National Bank. The bank has $200 million of assets which have an average duration of seven years and $185 million of liabilities which have an average duration of five years. The current interest rate is 5 percent annually. Conduct a duration analysis for the Liberty National Bank and show what will happen to the equity of the Liberty National Bank if interest rates suddenly rise by 4 percentage points. Show all calculations. < (ii) Based on your answer for (i), does Liberty National Bank face failure? As CRO, list three actions you could take to reduce the Liberty National Bank's interest-rate risk.< (Limit: 100 words)< (iii) As CRO of Liberty National Bank, you are looking at the differences between a "bail-out" and "bail-in" for failed banks, Describe two key differences between "bail-outs" and "bail- ins." Place citations at the end of the exam paper.
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a To calculate the maximum deposit outflow that CBC Bank can sustain without altering its balance sheet we need to determine the excess reserves Excess reserves are the reserves held by a bank above t... View the full answer
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