. The following table is the balance sheet for Bank A: Assets Risk weight factor

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 asset

Explanation / Answer

Answer 1 CET 1 consists of core capital elements in a banks balance sheet like equity and retained earnings In this case we can consider Equity, common equity and retained earnings as part of CET1. There fore CET1= 30+60+15 =105 Answer 2 Additional Tier 1 includes less core capital elements like preference shares and contingent convertibles In this case we can take the prefered stock of 15 as additional tier 1 Answer 3 Tier two includes other intruments like subordinated debt, hybrid intruments, revaluation reseves etc. This case we can subordinated debt of 20 as tier 2 Answer 4 RWA or riskweighted assets is found as a percentage of the assets as stipulated by BASEL or the national regu;latory authoriy. This case we will use the weights given in the question. Therefore RWA= 120*0%+240*0%+ 20*20% + 350*50% +150*100% +10*100% +50*100% = 389 Anwers 5-8 are not included since asper chegg policy we are suppposed to answer only 4 subparts in case there are multiple questions. In case u neeed asnwers for them too, please resubmit the question and mentions the questions that you want answered. Thank you

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