Suppose Regions Bank has initially $10 million in reserve, $50 million in securities and a borrowing of $5 million from National Bank. Its total deposit is equal to $50 million. The desired reserve ratio is 10%.
a. Show the bank’s balance sheet, including the bank capital.
b. If net profit is $2 million then find out the value of the Equity Multiplier using ROA and ROE.
c. If the bank gets a loan of $3 million from the Bank of Canada and at the same time there is a deposit inflow of $5 million then what will be its new balance sheet?
d. Would you recommend any actions for the bank after the above changes have occurred? If so then what are the possible actions and under what conditions?