First National Bank of Wimbley reports tier-one capital of $60 million and tier-
ID: 2669409 • Letter: F
Question
First National Bank of Wimbley reports tier-one capital of $60 million and tier-two capital of $70 million. First National has assets of $10 million with a risk weight of zero, assets of $350 million with a 0.2 risk weight, assets of $680 million with a 0.5 risk weight, and assets of $1,010 million with a risk weight of 1.00. What is First National's total risk-weighted assets? Does the bank have enough tier-one capital under the terms of the Basel I Agreement? Enough total capital? Why or why not? Would this bank likely have to conform to the rules of the Basel II Agreement when Basel II takes full effect?Explanation / Answer
Tier1 capital, T1 = 60 m$
Tier2 capital, T2 = 70 m$
Risk Weighted Assets, RWA, a :
= 10*0+350*0.2+680*0.5+1010*1.0 = 1420 m$ (ANSWER)
CAR = T1/a = 60/1420 = 0.04225 = 4.225 %
It is greater than 4% and so T1 is adequate as per Basel I . (ANSWER)
This bank will be required to conform to basel II when comes into effect.
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