Bank Balance Sheet Create a balance sheet for a typical bank, showing its main liabilities (sources of funds) and assets (uses of funds).
1. Bank Capital Explain the dilemma faced by banks when determining the optimal amount of capital to hold. A bank's capital is less than 10 percent of its assets. How do you think this percentage would compare to that of manufacturing corporations? How would you explain this difference?
2. Bank Loan Diversification In what two ways should a bank diversify its loans? Why? Is international diversification of loans a viable strategy for dealing with credit risk? Defend your answer.
1. Interest Income How can gross interest income rise while the net interest margin remains somewhat stable for a particular bank?
2. Impact on Income If a bank shifts its loan policy to pursue more credit card loans, how will its net interest margin be affected?