Bank To Write Off Bad Loans By Liquidation

Question

As a result of loan write-offs, Bank A has to be liquidated by the regulators. The book value of the assets and liabilities of the bank is presented below (in millions of dollars). The market value of the loans has been estimated at $240 million.

 

1. What is the current net worth (market value) of the bank?
    a.    +$40 million.
    b.     $0 million.
    c.    -$40 million.
    d.    -$60 million.
    e.    -$100 million.

2. What is the cost to the insured depositors if the insured depositor transfer resolution method is used by the regulators to resolve the bank failure?
    a.    $0.
    c.    $30 million.
    d.    $40 million.
    e.    $60 million.


3. What is the cost to the uninsured depositors if the insured depositor transfer resolution method is used by the regulators to resolve the bank failure?
    a.    $0.
    b.    $20 million.
    c.    $30 million.
    d.    $40 million.
    e.    $60 million.

4. What is the cost to the FDIC if the insured depositor transfer resolution method is used by the regulators to resolve the bank failure?
    a.    $0.
    b.    $20 million.
    c.    $30 million.
    d.    $40 million.
    e.    $60 million.

Summary

The question belongs to Finance and it is about a bank which needs to be liquidated to write off all the bad loans. Various questions in this regard like the current net worth, cost of insured depositors, etc have been answered in the solution.

Total Word Count 50