Describe the choice faced by a bank manager when trying to make decisions about cash holdings. What tradeoffs come from liquidity risk?

QUESTION 1

In the Syracuse Post Standard and on syracuse.com, they publish a weekly list of restaurants that have been cited for health code violations by local health inspectors. How does this solve both adverse selection and moral hazard problems? (Be sure to address each problem)

QUESTION 2

Pick one of the functions of financial intermediaries discussed in chapter 11. For this function, describe how an institution performs this function in your life.

QUESTION 3

Describe the choice faced by a bank manager when trying to make decisions about cash holdings. What tradeoffs come from liquidity risk?

QUESTION 4

Consider a bank with the balance sheet below. The bank has net profit after taxes of $3.1 million  

Assets (mil) Liabilities (mil)      

Reserves $15 Deposits $100       

Loans $84 Borrowing $10

Securities $31  

Calculate the return on equity (ROE), ( chapter 12, page 307). Enter as a percent, two decimals, without the percent sign. So 5.237% is entered as 5.24 

QUESTION 5

Consider a bank with the balance sheet below. The bank has net profit after taxes of $2.7 million  

Assets (mil) Liabilities (mil)      

Reserves $15 Deposits $100       

Loans $81 Borrowing $4

Securities $43  

Calculate the leverage ratio.  

QUESTION 6

Go to the FDIC’s 2019 Annual Risk Review here :  https://www.fdic.gov/bank/analytical/risk-review/

Go to section 3 Key Bank Risk Issues:  https://www.fdic.gov/bank/analytical/risk-review/section3.pdf

Consider the Nonbank Financial Institution Lending part of this section (page 34). Describe two key risks face by banks in this area.

QUESTION 7

Consider the percentage of banks that fail. Here you will plot the fraction (in percent) of bank failures from 1984-present. 

Start with the number of failures (FRED code: BKFTTLA641N).

Then scroll down to the customize box and select the number of banks (FRED code: USNUM). Click add.

Then you do a transformation in the box below, a/b.

Use the bottom left Share Link button to paste the URL

Discuss the timing and the proportion of failures relative to the most recent recession. Do you think most of the failing banks large or small? Explain your answer.

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