Calculate the bank’s capital to asset ratio before and after the agreements. Does the bank meet the minimum capital ratio of 4%?

Consider a bank with the following balance sheet:

Assets Liabilities & Capital
Required Reserves $20 million Checkable deposits $250 million
Excess reserves 48 million
T-bills

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Mortgage loans

50 million

50 million

Commercial loans $100 million Bank capital $18 million

Assume the required reserve ratio is 8%. The bank enters into agreements to make loan commitments of $30 million to various commercial customers.

a) Calculate the bank’s capital to asset ratio before and after the agreements. Does the bank meet the minimum capital ratio of 4%?

b) Calculate the bank’s capital to risk-weighted asset ratio before and after the agreements.

 

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