Ultimate access to all questions.
Explanation:
The size of the bank would decrease (shrink) by the amount of deposit withdrawal. Therefore, the total assets would decline to $4,920 - $200 = $4,720 million
Q.3900 You are provided with a simple balance sheet for Loud bank. When the bank’s depositors withdraw $200 million, the bank faces a liquidity challenge.
| Assets | Amount |
|---|---|
| Cash | $48 |
| Securities | $940 |
| Loans | $3,932 |
| Total assets | 4,920 |
| Liabilities and Equity | |
| Deposits | $3,948 |
| Other liabilities | $440 |
| Equity | $532 |
| Total Liabilities and equity | $4,920 |
If Loud bank employs the asset conversion method and decides to sell its securities to cover the deposit drain, what happens to the size of the bank due to withdrawal?
A
Increase
B
Decrease
C
No change
D
Cannot establish from the information
No comments yet.