Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy? Use the following balance sheet to answer questions 5-8 ($000) Cash 21 Demand Deposits 550 Securities 369 Fed Funds (Borrowings) 151 Loans 400 Equity 89

Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy? Use the following balance sheet to answer questions 5-8 ($000) Cash 21 Demand Deposits 550 Securities 369 Fed Funds (Borrowings) 151 Loans 400 Equity 89

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 4P

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