Answer to Question #106672 in Accounting for Tom

Question

BIT Bank (in millions) Assets： Reserves $48 Loans $360 Liabilities： Deposits $340 Bank Capital $68 NAT Bank (in millions) Assets Reserves $48 Loans $360 Liabilities Deposits $400 Bank Capital $8 Assume that both BIT Bank and NAT Bank have the same net profit after tax of $8 million a. Which bank (Bank BIT or Bank NAT) is riskier in case of loan depreciation at $60 million? Explain. Show your calculations to explain your answers.
Expert's answer

Answer 1

 Bank NAT is riskier in case of loan depreciation at $60 million:lower coverage

$\frac{300}{400}=0.75$  NAT Bank

$\frac{300}{340}=0.88$ BIT Bank