Bank leverage Use the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $150 Deposits $1,200 Loans $600 Debt $200 Securities $750 Capital (owners' equity) $100 Suppose a new customer adds $100 to his account at Southwestern Mutual Bank, which the owners of the bank then use to make $100 worth of new loans. This would increase the loans account and the account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply. The total value of liabilities The riskiness of each asset The size of the monetary base

Equity is computed as the entire value of an asset less all obligations (Equity = Assets - Liabilities).
Subtract your debt obligations on any loans that are secured by your home from its appraised value to get your equity.
You may determine it by taking away all obligations from the total asset value: Assets minus liabilities equal equity. The value of the assets donated by the owner(s) and the entire revenue that the business generates and keeps is referred to in accounting as the company's total equity value.

Owner's equity is made up of the owner's initial investment in the company less any withdrawals or draws made by the owner, plus any net gains (or losses) realised since the company's inception. Because liabilities have a bigger claim than owner's equity, owner's equity is seen as a residual claim on the company's assets.

Given data :

Owners' Equity - $100

Liabilities:

Deposits $1,200

Debts $200

Total - $1,400

Equity and Liabilities = $1,500

Assets:

Reserves - $150

Loans $600

Securities $750

Total Assets - $1,500

a) If a new client adds $100 to his account, both the loans and the deposits accounts would be increased by $100.

b) The leverage ratio calculates the bank's core capital as a percentage of all assets.

Old leverage ratio is 100/150x100%, or 6.67%
The new leverage ratio is calculated as 100 / 1600 x 100%, or 6.25%.

c) The protection of the interests of individuals who own stock in the bank is the intended purpose of the capital requirement.

Banks have a lot of debt. This indicates that they frequently keep high leverage ratios. Always, the liabilities outweigh the capital.

The ratio of a bank's core capital (shareholders equity) to all of its assets is known as the leverage ratio.

For this reason, the Federal Reserve imposes capital standards on banks. This makes an attempt to safeguard shareholders' equity, which is typically written off when leverage ratios rise. This is due to the fact that while the debts are unsecured, the capital component of the assets to which they are attached are not.

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