National Bank has the following balance sheet (in millions) and has no off- - ba
ID: 2797962 • Letter: N
Question
National Bank has the following balance sheet (in millions) and has no off--balance-sheet activities.
page 649
Assets
Liabilities and Equity
Cash
$ 20
Deposits
$ 980
Treasury bills
40
Subordinated debentures
25
Residential mortgages
600
Common stock
45
(category 1, loan-to-value ratio = 70%)
Retained earnings
40
Business loans
430
Total liabilities and equity
$1,090
Total assets
$1,090
What is the CET1 risk-based ratio?
What is the Tier I risk-based capital ratio?
What is the total risk–based capital ratio?
What is the leverage ratio?
In what capital category would the bank be placed?
Assets
Liabilities and Equity
Cash
$ 20
Deposits
$ 980
Treasury bills
40
Subordinated debentures
25
Residential mortgages
600
Common stock
45
(category 1, loan-to-value ratio = 70%)
Retained earnings
40
Business loans
430
Total liabilities and equity
$1,090
Total assets
$1,090
Explanation / Answer
National Bank What is the CET1 risk-based ratio? The CET1 risk-based ratio is ($45 + $40)/$1,090 = 0.07798 or 7.798 percent. What is the Tier I risk-based capital ratio? Risk-weighted assets = $20x0.0 + $40x0.0 + $600x0.5 + $430x1.0 = $730. Tier I capital ratio = ($45 + $40)/$730 = 0.11644 or 11.644 percent. What is the total risk–based capital ratio? The total risk-based capital ratio = ($45 + $40 + $25)/$730 = 0.15068 or 15.068 percent. What is the leverage ratio? The leverage ratio is ($45 + $40)/$1,090 = 0.07798 or 7.798 percent. In what capital category would the bank be placed? The bank would be place in the well-capitalized category as it is very well capitalized. But inorder to rank the capital adequacy risk profile needs to be analysed.
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