This problem focuses on bank capital management and various capital ratio measures. Following are recent balance sheet

Question:

This problem focuses on bank capital management and various capital ratio measures. Following are recent balance sheet accounts for Prime First National Bank.

All amounts are in millions of dollars.
The bank has loan-loss reserves of $10 million. The real estate and commercial loans shown on the balance sheet are net of the loan-loss reserves.
a. Calculate the equity capital ratio. How could the bank increase its equity capital ratio?
b. Risk-adjusted assets are estimated using the following weightings process: cash and government securities = .00; real estate loans = .50; commercial and other loans = 1.00. Calculate the risk-adjusted assets amount for the bank.
c. Calculate the Tier 1 Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
d. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
e. What actions could the bank management team take to improve the bankâ€™s Tier 1 and Total Capital ratios?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...