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

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  1. 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

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