Answer and Explanation:
In the case when the bank borrow $200 so it would be increase the capital account
The initial value of the leverage ratio is
= total assets ÷ total equity
= (Reserves+ loans+ securities) ÷ (owner's enquity)
= ($175 + $700 + $875) ÷ $125
= $1750 ÷ 125
= 14
Now the new value of the leverage ratio is
= total assets ÷ total equity
= (Reserves+ loans+ securities) ÷ (owner's enquity)
= ($175 + $700 + $875 + $200) ÷ $125 +
= $1950 ÷ $125
= 15.6
The statement i.e. true for the capital requirement is that the more the percentage of the asset the bank hold the greater the capital requirement