As a result of loan write-offs, Bank A has to be liquidated by the regulators. T

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.

Loans (book value) $340 Insured Deposits $200
Uninsured Deposits $100
Equity $ 40

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.

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.
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.
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.

Explanation / Answer

1.b. $0 million. 2.d. $40 million. 3.e. $60 million. 4.b. $20 million.

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