Chapter 29: Problem 6
Happy Bank starts with \(200\) in bank capital. It then accepts \(800\) in deposits. It keeps 12.5 percent (1/8th) of deposits in reserve. It uses the rest of its assets to make bankloans. a. Show the balance sheet of Happy Bank. b. What is Happy Bank's leverage ratio? c. Suppose that 10 percent of the borrowers from Happy Bank default and that these bank loans become worthless. Show the bank's new balance sheet. d. By what percentage do the bank's total assets decline? By what percentage does the bank's capital decline? Which change is larger? Why?
Short Answer
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Key Concepts
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