Question: Use the data in Table 2-5 for banks in the two asset size groups (a) $100 million-$1 billion and (b) more than $10 billion to

Use the data in Table 2-5 for banks in the two asset size groups (a) $100 million-$1 billion and (b) more than $10 billion to answer the following questions.
a. Why have the ratios for ROA and ROE tended to increase for both groups over the 1990-2006 period, decrease in 2007-2009, and increase in 2010-2012? Identify and discuss the primary variables that affect ROA and ROE as they relate to these two size groups.
b. Why is ROA for the smaller banks generally larger than ROA for the large banks?
c. Why is the ratio for ROE consistently larger for the large bank group?
d. Using the information on ROE decomposition in Appendix 2A, calculate the ratio of equity to total assets for each of the two bank groups for the period 1990-2012. Why has there been such dramatic change in the values over this time period, and why is there a difference in the size of the ratio for the two groups?

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a The primary reason for the improvements in ROA and ROE from 1990s through 2006 may be related to the continued strength of the macroeconomy that allowed banks to operate with reduced bad debts or lo... View full answer

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