A commercial bank has the following balance sheet Assets Liabilities Cash 5 Deposits 89 Marketable Securities 10
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Question:
A commercial bank has the following balance sheet Assets Liabilities Cash 5 Deposits 89 Marketable Securities 10 Subordinary Long Term Debt 1 Loans 80 Equity Capital 10 Fixed Assets 5 Total 100 Total 100 And income statement Net Interest Income 3.00 Loan Losses (10.00) Non-Interest Income 0.90 Non-Interest Expense (2.50) Pre-Tax Operating Income a) Solve for the pre-tax operating income. Is the equity enough to cover the losses? (5 points) b) What is the maximum loan loss this bank can take before it becomes insolvent? (5 points)
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