Problems and Applications Q5
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Please Wait . . . Please Wait... Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5 percent (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans. Complete the following balance sheet for Happy Bank.
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Happy Bank
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Assets
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Liabilities
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Reserves
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Deposits
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Loans
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Bank Capital
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Points: Close Explanation: Happy Bank's leverage ratio is . Points: Close Explanation: Suppose that 10 percent of the borrowers from Happy Bank default, and these bank loans become worthless. Complete Happy Bank's new balance sheet.
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Happy Bank
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Assets
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Liabilities
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Reserves
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Deposits
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Loans
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Bank Capital
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Points: Close Explanation: The bank's total assets decline by , and the bank's capital declines by .