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Accy 510 An Accountancy Mystery - Accy 510 An Accountancy...

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Accy 510 An Accountancy Mystery You are management of a bank, in the middle of the financial market crisis. (Let’s say that it’s the 1 st of September, 2008.) The government regulatory agency in charge of banking requires you to maintain total regulatory capital of 5% of total assets. The agency uses the bank’s stockholders’ equity as reported in the financial statements to measure the bank’s regulatory capital. Your (very simplified) balance sheet looks like this: Assets Liabilities Cash $ 5,000 Deposits $ 90,000 Loans receivable, net of $8,000 Short-term borrowings 35,000 loan loss reserve 105,000 Long-term borrowings 65,500 Securities investments 65,000 Equity Facilities and equipment 25,000 Contributed capital 6,000 Retained earnings 3,500 Luckily, the government has seen the state of the financial markets, and it has agreed to provide funds to your bank. They do so with the desire that you will use the funds to resume lending activities – to stimulate the financial markets (not to pay yourselves large bonuses).
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