Bank A has the following characteristics: (in $ billion) Balance sheet size RWA Basel I RWA...

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Bank A has the following characteristics: (in $ billion) Balance sheet size RWA Basel I RWA Basel III* Common equity Tier I capital Residual Tier I capital Tier II capital Bank A 2,000 1,400 900 40 30 20 *RWA for Basel III are calculated using the standardized approach (a) Explain why the RWA calculated for Basel I is smaller than the balance sheet size. Illustrate your answer with examples. (b) Infer the risk profile of Bank A from the data provided above. (c) Calculate the minimum Tier I capital that Bank A needs in order to meet Basel III standards. Conclude if Bank A complies with this aspect of the requirements. (d) Explain the purpose of Basel III conservation buffer and how it would affect your answer in part (c). Bank A has the following characteristics: (in $ billion) Balance sheet size RWA Basel I RWA Basel III* Common equity Tier I capital Residual Tier I capital Tier II capital Bank A 2,000 1,400 900 40 30 20 *RWA for Basel III are calculated using the standardized approach (a) Explain why the RWA calculated for Basel I is smaller than the balance sheet size. Illustrate your answer with examples. (b) Infer the risk profile of Bank A from the data provided above. (c) Calculate the minimum Tier I capital that Bank A needs in order to meet Basel III standards. Conclude if Bank A complies with this aspect of the requirements. (d) Explain the purpose of Basel III conservation buffer and how it would affect your answer in part (c).

Answer rating: 100% (QA)

a There are a few reasons why the RWA for Basel I is smaller than the balance sheet size One reason is that Basel I excludes certain types of assets f... View the full answer