Question

A Bank has the following balance sheet (in millions) and has no off-balance-sheet activities Assets Liabilities...

A Bank has the following balance sheet (in millions) and has no off-balance-sheet activities

Assets Liabilities and Equity
Treasury Bills 30 Deposits 980
Long-term Treasury securities 10 Subordinated bonds 20
Residential mortgages 600 Convertible bonds 20
Commercial loans (AA+ rated) 105 Perpetual preferred stock (nonqualifying) 5
Business loans (BB+ rated) 210 Perpetual preferred stock (qualifying) 10
Commercial loans (CCC+ rated) 130 Common stock 40
Cash 20 Retained Earnings 30
Total Assets 1,105 Total liabilities and equity 1,105

What are the Risk Weighted Assets? What is the Tier I capital ratio? What is the Tier II capital ratio? What is the total capital of the bank? What is the capital adequacy ratio?

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Answer #1

Sol :

Risk Weighted Aseets :

Risk Adjusted Assets Amount(in millions) Percentage of Risk Amount(in millions)

Treasury Bills 30 0 0

Longterm Treasury securities 10   0 0

Residential Mortages 600 50% 300

Commercial Loans(AA+ Rated) 105 50% 52.50   

Businees loans 210 100% 105

commercial loans 130 150% 195

Cash 20 0 0

Total    652.5

Tier 1 Capital

Amount (in millions)

Deposits 980

Perpetual Preffered Stock (Non Qualifying) 5

Perpetual Preffred stock (Qualifying) 10

Common stock 40

Retained Earnings 30

Total = 1065

Tier 2 Capital

Amount (in millions)

Subordinate Bonds 20

Convertible bonds 20

Total = 40

Capital Adequacy Ratio

= Capital Funds (Tier 1 & Tier2) / Risk Weighted Assets+off Balance sheets items *100

= (1065+40)/(652.5+0) *100

= 169%

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