Question

9. Bank leverage Use the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $200 Deposits $1,600 Loans Debt $800 $250 Securities Capital (owners' equity) $1,000 $150 Suppose a new customer adds $100 to his account at Southwestern Mutual Bank, which the owners of the bank then use to make $100 worth of new loans. This would increase the loans account and the account. increase of This would also bring the leverage ratio from its to a new value of decrease Which of the following is true of the capital requiremee eeck all that apply. OIts intended goal is to protect the interests of those who hold equity in the bank. OIt specifies a minimum leverage ratio for all banks. Its intended goal is to protect the interests of the depositors.

Answer 1

Answer:

Suppose the owner of the bank borrow $100 to increase their existing reserves. This would increase the loans accounts and increase the debt account.

Leverage ratio:

By using the formula the leverage ratio is calculated as follows:

Leverage ratio = Total asset / capital

= (200 + 800 + 1000) / 150

= 13.33

Hence, the initial leverage ratio is 13.33

After the owner borrow $100 the leverage ratio will be

Leverage ratio = ((200 + 100) + 800 + 1000) /150

= 14

Hence, the new leverage ratio is 14

Hence the Change value is from 13.33 to 14

From the given, Statement 3 is correct.

“Its intended goal is to protect the interest of the depositors”