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Unformatted text preview: Assets Change Liabilities Change Tot Reserves 10 Deposits 95 Required 10 W/D 5 Excess Loans 95-5 Borrowed Funds 30 Securities 40 0 Bank Capital 20 Total 145 Total 145 Sell loans of 5 or sell securities of 5 If securities are discounted 50%, Then sell 10 to raise 5 to meet W/D. That means bank capital is reduced by 5 Issue: Write down of Assets viewed as non performing. If 10% of loans are nonperforming or default? Reduces assets by 10 so bank capital is reduced by 10 Problem if loans have become suspect or securities are viewed as Toxic...
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- Winter '10