Question

Oldhat Financial starts its first day of operations with $9 million in capital. A total of $130 million in chequable deposits is received. The bank makes a $25 million commercial loan and another $50 million in residential mortgages. Other cash available is held as reserve.

a). What does the bank balance sheet look like?

b). Calculate the risk-weighted capital ratio after Oldhat’s first day.

Answer 1

a) The balance sheet is give below in excel form

Assets		Liabilities
Reserves	$   64,000,000.00	Capital	$     9,000,000.00
Commercial loans	$   25,000,000.00	Chequable deposits	$ 130,000,000.00
Residential mortgages	$   50,000,000.00
Total Assets	$ 139,000,000.00	Total Liabilities	$ 139,000,000.00

b) Risk weights of commercial loans is 100% = 25,000,000*100% = 25,000,000
Risk weights of Residential mortgages is 50% hence = 50,000,000*50% = 25,000,000

Risk Weighted Capital ratio= Capital/Risk Weights = 9,000,000/(25,000,000+25,000,000) = 18%

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well