write my assignment 11751

1. The World’s Best Bank (WBB) is the only bank in the country and its T-account is:

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Assets           (in $ million)                                    Liabilities    (in $ million)

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Reserves                               300                            Deposits                                600

Loans                                    200

Cash held in overseas banks 100                            Debt                                     200

Securities                             300                           Capital (owner’s equity)      100

Going back to the original T-account (i.e. the withdrawal of part d. did NOT take place), Suppose that due to the mortgage crisis some people default on their loans, and their value thus decreases by 50. What happens to the leverage ratio (assuming the bank makes no changes in reserves)? (2 marks)