Let's change the example of capital requirements in Table 10.3. Assume that Melvin's Bank holds $40 in Treasury bonds (rather than $10) and $30 in loans to other banks (rather than $10). Otherwise, Melvin's assets are the same as in the table.

a. Calculate the level of capital that Melvin's must hold to satisfy (i) the minimum equity ratio and (ii) the risk-based Basel requirement.

b. Which of the two requirements is more stringent in this case? Is the answer different than it was for the original Table 10.3? If so, why?

TABLE 10.3 Capital Requirements for Melvin's Bank (A) Computing Weighted Assets Weighted Assets Assets 10 0.0 Treasury bonds Municipal bonds 10 10 0.0 0.5 Loans 10 20 90 150 0.2 0.5 1.0 2 10 90 107 Home mortgages C&I TOTAL (B) Minimum Levels of Capital Based on minimum equity ratio: Minimum capital (0.05)(total assets) - (0.05)($150) $7.50 Minimum capital (0.08)(weighted assets) - $8.56 Based on Basel requirement = (0.08)($107)