Use the following simplified bank balance sheet for Gourd Ba…
Use the following simplified bank balance sheet for Gourd Bank to answer the following two questions. Assume that the bank has no off-balance-sheet activities. Assets Book Value Risk weight Cash + Reserves $10 0% Treasuries $50 0% Commercial Loans BB+ $80 100% Single Family Mortgages $100 50% Mortgage-Backed Securities $90 30% Commercial Loans CCC+ $60 150% Reserve for Loan Losses (-$10) N/A Liabilities Book Value Capital Type Deposits $370 – Common Stock $8 Tier 1 Retained Earnings $4 Tier 1 Subordinated Debt $8 Tier 2 Tier 2 capital component limits: Reserve for loan losses: maximum of 1.25% of risk-weighted assets. Subordinated debt: maximum of 50% of Tier 1 capital. Gourd Bank.xlsx