A bank starts with $200 in deposits. The required reserve ratio is 10%. The bank loans out 70% of all non-required deposits and invests the rest in short-term securities. The bank capital is $15. a) Draw up a T-account for the above bank. List all assets and liabilities(+equity) in $. b) How much money can be withdrawn from this bank before it requires external help to avoid failure? Try and exhaust all internal measures before declaring panic. c) Would a bank want to reach the point you found in b) before asking for help? Why or why not? Problem

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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1
A bank starts with $200 in deposits. The required reserve ratio is 10%. The bank loans out 70% of all
non-required deposits and invests the rest in short-term securities. The bank capital is $15.
a) Draw up a T-account for the above bank. List all assets and liabilities(+equity) in $.
b) How much money can be withdrawn from this bank before it requires external help to avoid
failure? Try and exhaust all internal measures before declaring panic.
c) Would a bank want to reach the point you found in b) before asking for help? Why or why not?
Problem
Transcribed Image Text:A bank starts with $200 in deposits. The required reserve ratio is 10%. The bank loans out 70% of all non-required deposits and invests the rest in short-term securities. The bank capital is $15. a) Draw up a T-account for the above bank. List all assets and liabilities(+equity) in $. b) How much money can be withdrawn from this bank before it requires external help to avoid failure? Try and exhaust all internal measures before declaring panic. c) Would a bank want to reach the point you found in b) before asking for help? Why or why not? Problem
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