review8 - 12% b. ROE for SNB =(ROA*Leverage)=1%*40= 40%...

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A13 Bank Management Risk Assessment I. Below is a basic balance sheet for a bank showing Assets on the left side and Liabilities and Equity on the right side. The main classes of Assets and Liabilities are listed. Using this balance sheet format, create a balance sheet for two banks: a) Conservative National Bank [CNB] with Equity = 200 and leverage = 12 b) Speculative National Bank [SNB] with Equity = 200 and leverage = 40 II. Assume each bank is earning a profit of 1% of Assets. Calculate the ROE for each bank: a. ROE for CNB = (ROA*Leverage)=1%*12=
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Unformatted text preview: 12% b. ROE for SNB =(ROA*Leverage)=1%*40= 40% III. Briefly discuss some factors influencing leverage. IV. Examine the credit riskrisk of insolvencyof these two banks under the stress of 5% each banks loans turning out to bad loan scenario as a consequence of a financial crisis. CNB- 2,400- (2,400*.05)=2,400-120=2,280 Assets- 2,200 Liabilities 80---> Equity still solvent but much less equity SNB- 8,000- (8,000*.05)=8,000-400=7,600 Assets- 7,800 Liabilities (200) ---> Equity insolvent! V. Explain briefly the problem of bailouts for the banking system Sign...
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review8 - 12% b. ROE for SNB =(ROA*Leverage)=1%*40= 40%...

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