Accy 510An Accountancy MysteryYou are management of a bank, in the middle of the financial market crisis. (Let’s say that it’s the 1stofSeptember, 2008.) The government regulatory agency in charge of banking requires you to maintain totalregulatory capital of 5% of total assets. The agency uses the bank’s stockholders’ equity as reported inthe financial statements to measure the bank’s regulatory capital. Your (very simplified) balance sheetlooks like this:AssetsLiabilitiesCash $ 5,000 Deposits $ 90,000Loans receivable, net of $8,000 Short-term borrowings35,000loan loss reserve 105,000Long-term borrowings65,500Securities investments65,000 EquityFacilities and equipment25,000 Contributed capital 6,000Retained earnings 3,500Luckily, the government has seen the state of the financial markets, and it has agreed to provide funds toyour bank. They do so with the desire that you will use the funds to resume lending activities – tostimulate the financial markets (not to pay yourselves large bonuses).
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