Problem
Relatively high levels of capital may reduce the moral hazard faced by the government deposit insurance system. True/false and explain.
Discuss the intermediary functions performed by commercial banks and provide illustrations (examples) of each of these functions commercial bank has $10 billion in cash and cash-equivalents, $30 billion in loans, and $15 billion in core deposits. Calculate the financing gap. What is the financing requirements? And how can the financing gap be used in the day-to-day liquidity management of the bank?
Since forward contracts and loan commitments are not on-balance sheet assets, but reflect off-balance sheet activities, a bank does not have to include them in risk weighted assets and thus do not need to be backed by capital. True/false and explain.
Relatively high levels of capital may reduce the moral hazard faced by the government deposit insurance system. True/false and explain.