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Percent of borrowers from happy bank default

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Please Wait . . . Please Wait... Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5 percent (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans. Complete the following balance sheet for Happy Bank.

Happy Bank

Assets

Liabilities

Reserves

 

Deposits

 

Loans

 

Bank Capital

 

Points: Close Explanation: Happy Bank's leverage ratio is . Points: Close Explanation: Suppose that 10 percent of the borrowers from Happy Bank default, and these bank loans become worthless. Complete Happy Bank's new balance sheet.

Happy Bank

Assets

Liabilities

Reserves

 

Deposits

 

Loans

 

Bank Capital

 

Points: Close Explanation: The bank's total assets decline by , and the bank's capital declines by .

Reference no: EM131289658

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