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    Banking and the management of financial institutions

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    1. The balance sheet of Tribank starts with an allowance for loan losses of $1.33 million. During the year, TriBank charges off worthless loans of $0.84 million, recovers $0.22 million on loans previously charged off, and charges current income for $1.48 million provision for loan losses. calculate the end-of-year allowances for loan losses.

    2. For the up coming week, Nobel National Bank plans to issue $25 million in mortgages and purchase $100 million 31-day T-bills. New deposits of $35 million are expected, and other sources will generate $15 million in cash. What is Nobel's estimate of funds needed?

    3. A bank estimates that demand deposits are, on average, $100 million with a standard deviation of $5 million. Than bank wants to maintain a minimum of 8% of deposits in reserves at all times. What is the highest expected level of deposits during the month? What reserves do they need to maintain? Use a 99% confidence level.

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    Solution Preview

    1. The balance sheet of Tribank starts with an allowance for loan losses of $1.33 million. During the year, TriBank charges off worthless loans of $0.84 million, recovers $0.22 million on loans previously charged off, and charges current income for $1.48 million provision for loan losses. calculate the end-of-year allowances for loan losses.

    Beginning balance for allowance for loan losses $1.33
    Less charges off worthless loans $0.84
    Add recovers on loans previously charged off $0.22
    Add ...

    Solution Summary

    This solution is comprised of a detailed explanation to calculate the end-of-year allowances for loan losses for Tribank and what is Nobel's estimate of funds needed, and answer what is the highest expected level of deposits during the month and what reserves do the bank need to maintain.

    $2.19

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