Bank a has a loansdeposits ratio of 10 bank b has a, Ask an Expert

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Bank A has a loans/deposits ratio of 10%. Bank B has a loans/deposits ratio of 90%. Which of the following statements are true?

a. Bank A is better because it has lower liquidity risk.

b. Bank A is lending out a lot of its funding.

c. If Bank A is near its borrowing limit, it could lead to future liquidity problems.

d. A loans/deposits ratio shouldn’t be too low because then the bank isn’t making money, however a high ratio means there could be liquidity risk in the future.

e. None of the above.

Please explain concept and interpret the percentage i.e - does a higher percentage mean they have 90% on hand and 10% lending?

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Financial Management, Finance

Category:- Financial Management
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