Get a unique, high-quality and non-plagiarized paper from us today at the most affordable price
Email us :

Bank capital and solvency risks

Here is a simplified balance sheet for a large bank: (£ billions)
Assets: Liabilities:
Loans: £1050 Equity £60
Financial assets £425retail deposits £950
Physical assets £15bonds and other long term debt £290
Reserves at the central bank £25 short term wholesale borrowing £215

The annual interest rates the bank offers on its liabilities are:
Retail deposits: 3%
Bonds and other long term loans: 5%
Short term wholesale loans: 4%
These are the promised interest rates – if there is a chance of insolvency the expected rates of return on these forms of debt finance will be lower. Shareholders have limited liability (their equity can be worth no less than zero).
The expected value of the return on the assets is 6%. Suppose that the total value of the assets a year ahead is normally distributed around its expected value and has a standard deviation of £60 billion.
1. What is the probability that the bank is insolvent a year ahead?
2. What is the expected – or average ‐ return on the equity over the year? (remember the shareholders have limited liability so this calculation is not straightforward and you definitely cannot do it with a pocket calculator!).
3. Devise a fair scheme to pay the holders of all the debt of the bank if the bank is insolvent. (Take note of the fact that there are three types of debt and each has been promised a different interest rate and each has provided a different amount of debt).
4. Assuming that there was no change in the return promised on all types of funding or in the returns on assets, how much of the deposits of the bank would need to switched to equity funding for the chances of insolvency to be halved?
Could the situation described in question 4 be an equilibrium? If it is not an equilibrium what might change?
Looking for the best essay writer? Click below to have a customized paper written as per your requirements.

How to Place an Order 

Send the assignment details such as the instructions, due date/deadline, number of pages and college level to the customer support agent online on live chat,  fill in the assignment details at place an order or send the information to our email address and a customer support agent will respond to you immediately. 

Once you place your order, we choose for you the best and competent writer for your assignment based on each writer’s competence in handling a subject. 

When the homework is completed, we have a quality assurance team that proofreads the assignment to ensure it meets the required rubric instructions from your professor.

After thorough review of your assignment, we send the paper to the client. In case you need any changes at this point, you can let us know so that we can handle it for you at no extra charge. 

Homework Help Website

Why we should write your Paper 

  1. Money Return guarantee
  2. 0% Plagiarism Rate
  3. Guaranteed Privacy
  4. Written from scratch by highly qualified writers 
  5. Communication at Any Time (24/7)
  6. Flexible Pricing and Great Discount Programs
  7. Timely Deliveries
  8. Free Amendments
Looking for a similar assignment and in urgent need for help? Place your order and have excellent work written by our team of professionals to ensure you acquire the best grades.

  We are here to assist you.


Statistics about Us

130 New Projects
235 Projects in Progress
315 Inquiries
420 Repeat clients

© 2021 Premiered Tutorials
All rights reserved. We provide online custom written papers, such as term papers, research papers, thesis papers, essays, dissertations and other custom writing services.

All papers inclusive of research material are strictly intended to be used for research and study purposes only. Premiered Tutorials does not support or condone plagiarism in any form. These custom papers should be used with proper reference.

Place an Order
error: Content is protected !!