Question

Various capital accounts of a bank are as follows:

Common Stock (Par) $4.91 million
Allowance for Loan Loss $8.04 million
Undivided Profit $15.07 million
Intermediate Term Preferred Stock $1.01 million
Subordinated Debt Capital $4.78 million
Surplus $9.91 million

Suppose that the bank has a quarter of its assets in each of the four risk categories used to compute risk-weighted assets. The total assets are $1135 million.
What is the bank’s Tier 1 capital in percent of risk-weighted assets, to the nearest 0.01%? (E.g., if your answer is 5.753%, record it as 5.75.)

Answer 1

bank’s Tier 1 capital in percent of risk-weighted assets =

Common stock and surplus = $4.91 Million $ 9.91 million = 14.82 Million

Undivided profits = $15.07 Million

Intermediate Term Preferred Stock = $1.01 million

bank’s Tier 1 capital in percent of risk-weighted assets = $ 30.90 Milion

Bank’s Tier 2 capital in percent of risk-weighted assets =

Allowance for Loan Loss $8.04 million
Subordinated Debt Capital $4.78 million

Bank’s Tier 2 capital in percent of risk-weighted assets = 12.82 Million

The bank does not have too much Tier 2 capital. Tier 2 capital can be up to 100 percent of the amount of Tier 1 capital and hence can still count toward meeting its capital requirements