Consider a commercial bank with the following assets and liabilities: cash 14 million; bank's own capital 12 million; residential mortgages 60 million; commercial loans 40 million; small- and large-denomination time deposits 60 million; consumer loans 30 million; U.S. Treasury bonds 6 million; interbank loans 2 million; and checkable deposits 80 million.
(a) Given the the required reserve ration is 12%, construct the blank's balance sheet, separately listing the required and excess reserves.
(b) Is the bank well-capitalized according to the standard leverage ratio?
(c) What is the largest single deposit outflow can the bank comfortably handle, using only primary and secondary reserves? Note that even after this outflow the bank should have sufficient required reserves. Find it to the nearest whole dollar.
(d) Compute the risk-weighted assets and find risk-weighted leverage ratio.
(e) Assuming that the duration of commercial loans is 2.5 years, what will be the effect of a 2% rise in interest rates on the bank's balance sheet?