The balance sheet of Bank Mutual, in million dollars, is 

Assets		Liabilities
Reserves	20	Checkable Deposits	130
Commercial Loans	80	Borrowings	110
Home Mortgages	100
T-bills	50	Bank Capital	10
Total	250	Total	250

Assume the required reserve ratio is 10% and the required risk-weighted capital / asset ratio is 8% based on the Basel Accord I.

(1) Fill out the following table by calculating the risk-weighted assets.

Assets	Risk weight	Weighted assets
Cash	0%
T-bills	0%
Commercial Loans	50%
Home Mortgages	100%

(2) Calculate the “risk-weighted capital / asset ratio” based on results in Part (1). The value of “capital” can be found in the first T-account above. Has the Bank Mutual met the Basel Accord I? Show your work.

(3) Assume terrible news hits the home mortgage markets, and the fears spread fast. Bank Mutual is experiencing unusually high withdrawal rates on its checkable deposits, which causes a bank run. Bank Mutual is now insolvent, and you have a deposit totaling $330,000 with it. Would you prefer that the FDIC resolve the insolvency under the “payoff method” or the “purchase assumption” method? Briefly explain your choice.

Answer rating: 100% (QA)

1 ANSWER Assets Risk weight Weighted assets Cash 0 0 Tbills 0 0 Comme... View the full answer