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Chapter 27: Q.15 (page 662)

How do you calculate a bank's net worth?

Short Answer

Expert verified

The net worth of the bank is the capital of the bank in other words. It is the difference between the value of assets and liabilities.

Step by step solution

01

Concept introduction

Bank's net worth is calculated as its total assets minus its total liabilities. The difference between a bank's assets and liabilities is the bank's capital and it represents the net worth of the bank.

02

 : Explanation

The net worth of the bank is the capital of the bank in other words. It is the difference between the value of assets and liabilities. The assets of the bank include interest-earning loans like a letter of credit, mortgages and interbank loan and the liabilities of the bank includes any debt it owes and loan loss reserves.

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