Bank A has a loans/deposits ratio of 10%. Bank B has a loans/deposits ratio of 90%. Which of the following statements are true?
a. Bank A is better because it has lower liquidity risk.
b. Bank A is lending out a lot of its funding.
c. If Bank A is near its borrowing limit, it could lead to future liquidity problems.
d. A loans/deposits ratio shouldn’t be too low because then the bank isn’t making money, however a high ratio means there could be liquidity risk in the future.
e. None of the above.
Please explain concept and interpret the percentage i.e - does a higher percentage mean they have 90% on hand and 10% lending?