Question:
A bank's balance sheet information is shown below (in $000).
1. What is the bank's risk-adjusted asset base under Basel III?
2. To be adequately capitalized, what are the bank's CET1, Tier I, and total risk-based capital requirements under Basel III?
3. Using the leverage ratio requirement, what is the minimum regulatory capital required to keep the bank in the well-capitalized zone?
4. Disregarding the capital conservation buffer, what is the bank's capital adequacy level (under Basel III) if the par value of its equity is $225,000, surplus value of equity is $200,000, retained earnings is $565,545, qualifying perpetual preferred stock is $50,000, subordinate debt is $50,000, and loan loss reserve is $85,000? Does the bank meet Basel (CET1, Tier I, and Tier II) adequate capital standards? Does the bank comply with the well-capitalized leverage ratio requirement?
5. Does the bank have enough capital to meet the Basel requirements, including the capital conservation buffer requirement?
6. The bank's various lines of business produced the following gross income:
Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Used for answers to 1-4 Weight On Balance Sheet Items Cash Short-term govermment securities (92 dav Long-term govemment securities (>92 days) Federal Reserve stock Repos secured by federal agencies Claims on U.S. depository institutions Loans to foreign banks, OECD CRC rated 2 General obligations municipals Claims on or guaranteed by federal agencies Municipal revenue bonds Residential mortgages, Face Value $121,600 Value So SO SO SO S31,800 $187,580 $328,000 S34,000 S5,300 $56,450 m10% 5,400 414.400 0% 0% 9,800 159.000 20% 937.900 20% 1,640,000 20%o 170.000 20% 26,500 20% 112.900 50% category, 1. loan-to-value ratio 75% Commercial loans Loans to sovereigns, OECD CRC rated 3 Premis es and equipment 5,000,000 50% $2,500,000 4,667,669 100% $4.667.669 11.600 50% 455,000 100% $5,800 S455,000 Conversion Factor Face Credit-Equivalent Risk-Adjusted Value Off Balance Sheet Items Amount Asset Value U.S. Government Counterparty Loan commitments S300 1,140 S60 570 SO year 1-5 year 20% 50% Standby letters of credit Performance-related Direct-credit substitute 50% 100% 200 100 100 100 U.S. Depository Institutions Counterparty Loan commitments 20% 50% 100 3,000 20 1,500 1 vear 1 year 1300 Standby letters of credit Performance-related Direct-credit substitute 50% 100% 20% 200 56,400 400 100 56,400 80 20 11,280 16 Commercial letters of credit State and Local Government Counterparty revenue municipals) Loan commitments >1 year 50% 100 50 25 Standby letters of credit Performance-related 50% 135,400 67,700 33,850 Corporate Customer Counterparty Loan commitments < 1 yea >1 year 642,480 50% 3,046,278 1,523,139 1,523,139 20% 3,212,400 642.480 Standby letters of credit Performance-related Direct-credit substitute 50% 100% 20% 101,543 490,900 78,978 50,772 490,900 15,796 50,772 490.9000 15,796 Commercial letters of credit Sovereign Counterparty Loan commitments, OECD CRC rated 1 <1 yea 20% 50% 1,225,400 612,700 110,500 22,100 1 year Sovereign Counterparty Loan commitments, OECD CRC rated 2 1 vear 20% 50% 85,000 115,500 17,000 57,750 3,400 11,500 >1 vean Sovereign Counterparty Loan commitments , OECD CRC rated 7: 1 year 50% 30,000 15.000 22,500 Interest rate market contracts: (current exposure assumed to be zero.) < 1 year (notional amount) >1-5 year (notional amount) 0% 0.5% 2,000 5,000 25 25