What is the purpose of having a correspondent bank

Question

1. What is the purpose of having a correspondent bank relationship?

2. Discuss the advantages and disadvantages of a bank holding less cash.

Use the following information for questions 3- 4.

Bank Assets			Bank Liabilities		RAC
Cash and Treasury Securities	$ 2,500		Deposits	$ 13,800	$ -
Repurchase Agreements	$ 1,000		Subordinated Debt	$ 250	$ -
Municipal Bonds	$ 1,500		Cumulative Preferred Stock	$ 200	$ -
Single Family Home Mortgages	$ 2,700		Common Stock	$ 100	$ -
Commercial Loans	$ 4,000		Common Stock Surplus	$ 300	$ -
Agricultural Loans	$ 1,500		Retained Earnings	$ 350	$ -
Allowance for Loan Loss	$ (350)				$ -
Bank Buildings	$ 2,000				$ -
Goodwill	$ 150				$ -
Total	$ 15,000			$ 15,000	$ -
Capital	Requirements	Amount
Tier 1	$ -	$ 750
Total Capital	$ -	$ 950
Equity Capital	$ 450	$ 750

3. How much Tier 1 capital does the bank have?

1. $100
2. $400
3. $450
4. $750
5. $950

4. How much Tier 2 capital does the bank have?

1. $200
2. $450
3. $550
4. $800
5. $1100

5. Discuss the TARP Capital Purchase Program.