College of Mount Saint Vincent Money & Banking Financial Institutions Discussion

question 1

Bank A

Bank B

Suppose that each Bank made a $5 million loan to Dalhousie Investments Incorporated, a long-term customer with history of credit problems, but a willingness to pay high interest rates.

• Dalhousie Investments uses its loans to undertake a risky project, goes bankrupt and defaults on its loans. How will this affect each of the two banks?
• What types of government regulations might have prevented these outcomes? How?
• What types of actions by the banks might have prevented these outcomes? How?

question2

The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987 to contribute to the safety and soundness of the Canadian financial system. OSFI supervises and regulates federally registered banks and insurers, trust and loan companies, as well as private pension plans subject to federal oversight.

• • Go to OSFI website – under Financial Institutions – select Financial Data – select Banks. Populate the most recent consolidated balance sheet of the bank of your choice, and attach a printout.
  • What is the total amount of loans held by the bank? Use “total currency”.
  • What is this number as a percentage of total bank assets?
  • Calculate the Equity Multiplier.
  • Would you buy the share of this bank as an investment? Explain