The following table is the balance sheet for Bank A: Assets Risk weight factors
ID: 2594382 • Letter: T
Question
The following table is the balance sheet for Bank A:
Assets
Risk weight factors
Risk adjusted assets
Cash
120
0%
U.S. Treasury Securities
240
0%
Bank reserves
60
0%
U.S. government agency securities
20
20%
Mortgage loans
350
50%
Consumer loans
150
100%
Construction loans
10
100%
Corporate debt securities
50
100%
Total
1000
Liabilities and Equity
Transaction deposits
700
Saving accounts
100
Negotiated CDs
50
Repos
70
Subordinated debt
20
Liabilities
940
Common equity
30
Retained earnings
15
Preferred stocks
15
Equity
60
(1) Calculate Common Equity Tier 1 capital. (0.5 point)
(2) Calculate Additional Tier 1 capital. (0.5 point)
(3) Calculate Tier II capital. (0.5 point)
(4) Calculate the credit risk-adjusted assets using the risk weight factors. (0.5 point)
(5) Calculate the total capital. (0.5 point)
(6) Calculate CET1/ Credit risk adjusted assets
Tier I / Credit risk adjusted assets
Total capital / Credit risk adjusted assets
Assets
Risk weight factors
Risk adjusted assets
Cash
120
0%
U.S. Treasury Securities
240
0%
Bank reserves
60
0%
U.S. government agency securities
20
20%
Mortgage loans
350
50%
Consumer loans
150
100%
Construction loans
10
100%
Corporate debt securities
50
100%
Total
1000
Liabilities and Equity
Transaction deposits
700
Saving accounts
100
Negotiated CDs
50
Repos
70
Subordinated debt
20
Liabilities
940
Common equity
30
Retained earnings
15
Preferred stocks
15
Equity
60
Explanation / Answer
1) Common Equity Tier 1 capital = Common equity+Retained earnings = 30+15 = 45
2) Additional Tier 1 capital = Preferred stocks = 15
3) Tier II capital = Subordinated debt = 20
4) Calculation of credit risk adjusted assets
5) Total Capital = Common equity Tier 1 capital+Additional Tier 1 capital+Tier 2 capital
= 45+15+20 = 80
6) CET1/ Credit risk adjusted assets = 45/389 = 11.57%
Tier I / Credit risk adjusted assets = (45+15)/389 = 60/389 = 15.42%
Total capital / Credit risk adjusted assets = 80/389 = 20.56%
Assets Amount Risk weight factors Risk adjusted assets Cash 120 0% 0 U.S.Treasury securities 240 0% 0 Bank reserves 60 0% 0 U.S. government agency securities 20 20% 4 Mortgage loans 350 50% 175 Consumer loans 150 100% 150 Construction loans 10 100% 10 Corporate debt securities 50 100% 50 Total 1000 389Related Questions
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