Questions On Melvin's Bank

Chapter #10
Question 4
If Walmart were allowed to open a bank that accepts deposits and makes loans and that bank were located at its stores in the United States, there would be substantial impacts on many different stakeholders.
A. This policy would impact existing banks in a few ways. A first general trend that would be seen and associated with this change is that other banks would have a smaller market share. This trend would be seen because there is another large competitor. Consider the impact that the change would impact community banks in particular. Community banks are small. Because of this, if Walmart were able to open banks, community banks would be harmed.
B. A first party that would stand to gain from opening banks is Walmart.
Credit unions would be likely to lose from Walmart opening banks because many low-income people who might chose a credit union would be driven to Walmart’s convenience.
Question 6
In this scenario, a few things are known about a derivative on which Melvin’s Bank can bet. The following is known to be true if Melvin’s Bank takes the bet on the derivative:
● Melvin’s Bank has a two-thirds probability of earning $20;
● Melvin’s Bank has a one-third probability of losing $40. A. In a scenario where Melvin has $20 in capital, the following list contains the possible costs and benefits of the bet for Melvin and the deposit insurance fund.
● Risk of falling into debt (negative $20) is a detriment
● Chance of making $20 is a benefit (will be $40 total)
Because of these costs, Melvin is unlikely to make the bet. On average, they will be even. However, the risk of debt makes it not worthwhile with no likely benefit
B. If Melvin’s Bank instead had $50 to invest, the statements in part A would change as follows:
● Melvin has less risk of falling into debt because it has more
The problem seen in this scenario was protections related to loans. The Office of the Comptroller of the Currency aimed to correct this problem. In response to this, the Office of the Comptroller of the Currency issued a $30 million civil money penalty against Bank of America.
Extra Question Currently, I am studying for the midterm exam by reviewing the textbook, completing samples problems, and by working with a tutor. The textbook has a lot of good information and the sample problems are good for practicing. My tutor has helped me with understanding the material as well. My notes for the course are included below:
Outline of Course Notes
● Chapter 1 - The Financial System
○ Bank loans, savings, investments, risk for