Question: An FI is planning to issue $100 million in BB-rated commercial loans. It will finance all of it by issuing demand deposits.
a. What is the minimum capital required if there are no reserve requirements?
b. What is the minimum demand deposits it needs to attract in order to fund this loan if you assume there is a 10 percent average reserve requirement on demand deposits, all reserves are held in the form of cash, and $8 million of funding is through equity?
c. Show a simple balance sheet with total assets and total liabilities and equity, assuming this is the only project funded by the bank.