You are the manager of Yihan Bank, and you worry because the income gap currently equals – $35 million and interest rates are expected to increase by 1.5%.
Compute the minimum average duration of assets a bank needs if it wants to tolerate a duration gap not lower than – 1.5 years, assuming the average duration of liabilities is 3.3 years, assets are currently valued at $300 million and liabilities are $280 million.
To get full credit, you must DRAW THE BALANCE SHEET AND FILL IN THE ASSETS AND LIABILITIES ITEMS REPORTED IN THE QUESTION
Consider the following balance sheet:
Examine the liquidity management practices of your bank over the last three years. Assume that the reserve requirement is 8% on all deposits.
Calculate the equity multiplier ratio for each year. How does the equity multiplier of your bank compare to the regional banks in year 3? Explain
One problem of the too-big-to-fail policy is that it ________ the incentives for ________ by big banks.
Banks do not want to hold too much capital because
The failure of one bank can hasten the failure of others in what is referred to as a contagion effect.
TRUE or FALSE
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