The accounting identity that relates the level of assets A, liabilities L, and equity E in...

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The accounting identity that relates the level of assets A, liabilities L, and equity E in a bank' is A -L = E. When A<La bank would be insolvent and subject to closure by banking regulators. Consider the 2006 balance sheet of Barclays PLC shown on slide 19 of lecture 17. What percent change in the level of their assets would cause their stock price (i.e., E) to go to zero if the level of their total liabilities did not change? Banking and Credit Barclays PLC in 2006 (GBP millions). Source: Carlin & Soskice, Figure 5.9 Assets Liabilities 1. Cash and reserve balances at the central bank 2. Wholesale reverse repo lending 1. Deposits 2. Wholesale repo borrowing secured with collateral 3. Unsecured borrowing 4. Trading portfolio liabilities 5. Derivative financial instruments 7,345 336,316 174,090 136,956 3. Loans (e.g. mortgages) 4. Fixed assets (e.g. buildings, equipment) 5. Trading portfolio assets 6. Derivative financial instruments 7. Other assets Total Assets 313,226 111,137 2,492 71,874 177,867 140,697 138,353 6. Other liabilities 172,417 183,414 996,787 Total liabilities 969,397 Net worth Equity 27,390 Memorandum item: Leverage (Total Assets/Net Worth) 996,787/27,390 - 36.4 The accounting identity that relates the level of assets A, liabilities L, and equity E in a bank' is A -L = E. When A<La bank would be insolvent and subject to closure by banking regulators. Consider the 2006 balance sheet of Barclays PLC shown on slide 19 of lecture 17. What percent change in the level of their assets would cause their stock price (i.e., E) to go to zero if the level of their total liabilities did not change? Banking and Credit Barclays PLC in 2006 (GBP millions). Source: Carlin & Soskice, Figure 5.9 Assets Liabilities 1. Cash and reserve balances at the central bank 2. Wholesale reverse repo lending 1. Deposits 2. Wholesale repo borrowing secured with collateral 3. Unsecured borrowing 4. Trading portfolio liabilities 5. Derivative financial instruments 7,345 336,316 174,090 136,956 3. Loans (e.g. mortgages) 4. Fixed assets (e.g. buildings, equipment) 5. Trading portfolio assets 6. Derivative financial instruments 7. Other assets Total Assets 313,226 111,137 2,492 71,874 177,867 140,697 138,353 6. Other liabilities 172,417 183,414 996,787 Total liabilities 969,397 Net worth Equity 27,390 Memorandum item: Leverage (Total Assets/Net Worth) 996,787/27,390 - 36.4

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