Consider the two banks and their balance sheets below. For each bank, calculate its return on equity (ROE) and leverage ratio
a. Bank A has net profit after taxes of $1.8 million and the balance sheet below:
Bank A (in millions) Assets Liabilities
Reserves $5 Deposits $100
Loans $70 Borrowing $10
Securities $45 Bank Capital $10
b. Bank B has net profit after taxes of $0.9 million and the balance sheet below:
Bank B (in millions) Assets Liabilities
Reserves $7.5 Deposits $75.0
Loans $55.0 Borrowing $3.0
Securities $23.5 Bank Capital $8.0