1. Suppose a bank's ROAE is 15 percent when ROAA is 1 percent. If the bank's equity capital-to-assets ratio increases, what will happen to the bank's ROAE and ROAA?
2. Exhibit 13.15 shows a dramatic decline in banks' ROAA and ROAE. Use the information in Exhibits 13.11 to 13.14 to explain the drop in banks' performance.
3. Why are changes in gross interest income and gross interest expense highly correlated, while noninterest income and noninterest expense are less highly correlated?

EXHIBIT 13.15: Return on Average Assets and Average Equity (1935–2010)

ROAA and ROAE tend to move together over time. When ROAA and ROAE do not move together, it is due to changes in capital-to-assets ratios. ROAE increases relative to ROAA when capital-to-assets ratios decrease, as they did in the late 1960s and 1970s. ROAA increases relative to ROAE when capital-to-asset ratios increase, as they have in the last 20 years.