1. A bank has deposits of 100 billion and leverage ratio of 12. Assume that it has a reserve ratio of 20 percent, and it holds no excess reserves. Further suppose that bank capital is $36 billion. Lump all assets besides ‘reserves’ into a category labeled ‘other’.

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1. A bank has deposits of 100 billion and leverage ratio of 12. Assume that it has a reserve ratio of 20 percent, and it holds no excess reserves. Further suppose that bank capital is $36 billion. Lump all assets besides ‘reserves’ into a category labeled ‘other’.
a) Write down a t-account for the bank. Briefly explain how you come up with any number.
b) Suppose the new legislation requires banks to have a reserve ratio of at least 30 percent. The bank meets this requirement by issuing new debt. There is no change in the amount of deposits. Show the new t-account. What is the new leverage ratio?

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