Please show your work for all calculations, either by hand or with an attached Excel spreadsheet.
1. Given the balance sheet information below, determine the following:
a. the total amount of risk-weighted assets this bank has for the purpose of determining minimum regulatory capital amount under Basel II;
b. the amount of Tier I and Tier II capital that the bank has available;
c. whether or not the bank meets the minimum 4% and 8% standards of Basel II;
d. the bank's Tier 1 leverage ratio; and
e. whether the bank would meet the Basel III capital standards.
$ millions $ millions
Cash $80 Demand deposits $1,400
Deposits with other banks 160 Time deposits 1,600
Cash items in process of collection 40 CDs 2,000
Securities Fed funds purchased 200
U.S. Treasury bills $350 Subordinated debt (LT) 100
U.S. Treasury bonds 300 Total liabilities $5,300
GNMA bonds 250
FNMA bonds 200 Preferred stock (Tier I) 10
Municipal bonds (General Obligation) 150 Supplemental (Tier II) equity 20
Municipal bonds (Revenue) 100 Common stock 5
Total securities 1,350 Retained earnings 165
Loans Total equity 200
Loans to commercial banks (AA+ rated) $550 Total liabilities and equity $5,500
Commercial loans (AAA- rated) 600
Commercial loans (A rated) 650
Commercial loans (BB+ rated) 500
Commercial loans (CCC+ rated) 450
Residential mortgage loans 700
Loans to foreign governments (B+ rated) 400
Total loans 3,850
Less: Allowance for loan losses (100)
Net loans 3,750
Fixed and other assets 120
Total assets $5,500
Off-balance sheet items
$180 million 3-year loan commitment (BB+ rated)
$120 million standby credit substitutes (BBB- rated)
$60 million commercial letters of credit (BBB- rated)
$800 million notional, 5-year interest rate swap ($8.0 million in-the-money)
$350 million, 1-year foreign currency contract ($3.0 million out-of-the-money)
Attachment:- Risk-Weighted Assets.xlsx