Vault Cash Deposits at FRB Marketable Securities Commercial Loans Consumer Loans

Question

Vault Cash Deposits at FRB Marketable Securities Commercial Loans Consumer Loans Real Estate Loans Premises 55 Demand Deposits 165 Time deposits 1540 495 385 2695 165 5500 165 2585 2310 Purchase Funds Sub Debs Preferred Stock Common Stock 138 27 275 Total Regulatory Capital 440 5500 Interest Income Interest Expenditure Other Income Other Expenses 525.25 412.5 38.5 Consider the bank above. The regulatory authorities have decided that the regulatory capital ratio for this bank should be 10%. The bank decides to comply with this ruling by issuing new subordinated debentures. How much will the bank have to issue to be in compliance with the

Explanation / Answer

Total Regulatory Capital = 440

Total Assets on Balance Sheet = 5500

Current Regulatory capital ratio = Total Regulatory Capital / Total Assets

= 440 / 5500

= 8%

Required Regulatory capital ratio = 10%

Let X be the amount to be issued for new subordinated debuntures to comply with the new regulatory ruling

Amount to be issued for new subordinated debuntures => (440 + X) / 5500 = 10% (or 0.1)

    => 440 + X = 550

    => X = 110

Therefore, Amount to be issued for new subordinated debuntures to comply with the new regulatory capital requirement is 110.

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