Assume that total liabilities of a depository institution are $50,000 million. A
ID: 2652296 • Letter: A
Question
Assume that total liabilities of a depository institution are $50,000 million. All of these liabilities are transaction deposits. It has $40,000 million in loans and securities. The required reserve ratio is 17 percent. Does this institution hold any excess reserves? If so, how much?
A depository institution holds $190 million in required reserves and $24 million in excess reserves. Its remaining assets include $576 million in loans and $310 million in securities. Equity is $100 million. If the institution’s only liabilities are transaction deposits, what is the required reserves ratio?
In a recent year, a bank earned $173 million in interest on its assets of $2,153 million, it paid out $81 million in interest on its liabilities (excluding capital) of $2,007 million, and it paid its workers $71 million in total compensation.
a. How much is the net interest?
b. Calculate the net interest margin.
c. Calculate the bank spread.
d. Calculate the return on assets.
e. Calculate the return on equity.
Bradenton/Sarasota Bank had interest income of $80 million last year and $35 million in interest expenses. About $400 million of its $1 billion in assets are rate sensitive, while $700 million of liabilities are rate sensitive.
a. What is the net interest margin ratio?
b. What is the bank’s gap?
Explanation / Answer
Part 1 Transaction deposit 50000 Required Reserve 8500 Available Money for loan out 41500 Loans and Securities 40000 Excess Reserve 1500 Company holds excess Reserve of $1,500 million Part 2 Required Reserve 190 Loans Account 576 Securities 310 Remaining Loans and Securities 886 Add: Required Reserve 190 Total Loans and Sevurities 1076 Reserve Ratio (190/1076) 17.66% Part 3 Answer a. Net Interest (173-81) million $ 92.00 Answer b. Net Interest Margin (Net Interest/Related assets on which interest earned) 4.27% Answer c. Bank spread (173-81) $ 92.00 Answer d. Bank spread $ 92.00 Less workers Compensation $ 71.00 Net Income $ 21.00 Return on Assets (21/2153) 0.98% Answer e. Total Assets $ 2,153.00 Less Liabilities $ 2,007.00 Equity Capital $ 146.00 Retyrn on equity (21/146) 14.38%