A bank's financial assets consist of $100 million in loans yielding 6%. Its liabilities comprise $75 million in time deposits, which carry an interest rate of 2%, and $20 million in demand deposits. It has $5 million in equity capital. A customer withdraws $10 million from his checking account and the bank meets the withdrawal by not rolling over a $10 million loan. How do these actions affect the bank's Net Interest Margin and capital requirements?
a) NIM and capital requirements are both lower
b) NIM and capital requirements are both higher
c) NIM is higher and capital requirements are lower
d) NIM is lower and capital requirements are higher
e) Need to know the bank's equity in order to answer the question
Answer: a) NIM and capital requirements are both lower
Business
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