cash $75,000,000 domestic interbank deposits $130,000,000 US government securiti
ID: 2657923 • Letter: C
Question
cash $75,000,000 domestic interbank deposits $130,000,000 US government securities $250,000,000 Residential real estate loans $375,000,000 commercial loans $520,000,000 total assets $1,350,000,000 total liabilities $1,235,000,000 total capital $100,000,000 Off-Balance Sheet Items Standby credit letters that back municipal $87,000,000 general obligation bonds long-term unused cash commitments to $145,000,000 private companies Common Stock (Par Value) $5,000,000 Surplus $15,000,000 Undivided Profits $30,000,000 Allowance for Loan Losses $25,000,000 Subordinated debt Capital $20,000,000 Intermediate term debt capital $5,000,000 Suppose the bank reports the forms of capital shown above as of the date of its latest financial statement. What is the total dollar volume of tier 1 capital? Tier 2 capital? Calculate the tier 1 capital to risks weighted assets ratio
Explanation / Answer
a) Tier 1 capital = Common stock + Surplus + Undivided Profit = 5 + 15 + 30 = 50 million
b) Tier 2 capital = Allowance for Loan Losses + Subordinated debt Capital + Intermediate term debt capital = 25 + 20 + 5 = 50 miillion
Total Capital = Total Assets - Total Liabilities = Cash + Domestic Interbank deposit + US Government Securities + Residual real estate loans + commercial loans - Total Liabblities = 75 + 130 + 250 + 375 + 520 - 1235 = 1350 - 1250 = 100 million
Credit equivalent of off balance sheet items
Standby credit letters that back municipal = $87 * 0.20 = 17.4 million
General obligation bonds long-term unused cash commitments = 145 * 0.5 = 72.5 billion
0% risk category
Cash + US Government Securities = 75 + 250 = 325
So RWA = 325 * 0 = 0
20% Risk Category
Domestic Interbank deposit + Standby credit letters that back municipal bonds = 130 + 17.40 = 147.40 million
So RWA = 147.40 * 20% = 29.48 million
50% Risk Category
Residential real estate loans = $375 million
RWA = 375*0.5 = 187.50
100% Risk category
commercial loans + long-term unused cash commitments to private companies = 520 + 72.50 = 592.50
RWA = 592.50 * 1 = 592.50
So Total Risk weighetd Assets = 0 + 29.48 + 187.50 + 592.50 = 809.48
c) Tier 1 Capital to Risk weighted Assets = 50/809.48 = 6.18%
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