Lendy Bank reports the following balance sheet (on 31 October 2022, in billions $). Assets Liabilities...

 

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Lendy Bank reports the following balance sheet (on 31 October 2022, in billions $). Assets Liabilities Cash 25 Deposits 15 Short-term CDs Long-term debt 70 100 5 5 Government securities Retail loans Corporate loans Fixed assets Other assets Subordinated debt • Issue 20 billion in new lines of credit. o Credit conversion factor is 25%, oRisk weight is 100%. Share premium reserve Shareholder's equity • Issue 15 billion in new fixed-rate loans to corporate clients. o Average volume-weighted maturity is 5 years. o Risk weight is 100% o Funded entirely with newly issued 2-year certificates of deposit . Off the balance sheet, the bank holds $30 billion in lines of credit. In addition, it has $80 billion in 5-year interest rate swaps, currently $8 billion out of the money (all at reporting date 31 October 2022). The bank is now in the process of budgeting its balance sheet for the coming year (until 31 October 2023). The head of the credit department proposes the following objectives: 150 23 30 4 3 10 In addition, you know that • The sum of on-and off-balance sheet risk-weighted assets is $155 billion on 31 October 2022. $10 billion in risk-weighted assets is maturing between 31 October 2022 and 31 October 2023. • • The market for corporate loans is roughly $50 billion. In the past 5 years Lendy had a 15% market share in the corporate loans segment. The minimum Total Capital Adequacy Ratio is 8%, and the Conservation buffer is 2.5%. a. If Lendy Bank achieves the objectives set by the head of the credit department, will it be compliant with capital regulation on 31 October 2023? Interpret your findings. Hint: you only need to consider the Total Capital Adequacy Ratio. (3 marks) b. In addition to capital management, which other dimensions does Lendy need to take into account when budgeting these changes? Consider at least 3 other dimensions, and detail carefully. (9 marks) Lendy Bank reports the following balance sheet (on 31 October 2022, in billions $). Assets Liabilities Cash 25 Deposits 15 Short-term CDs Long-term debt 70 100 5 5 Government securities Retail loans Corporate loans Fixed assets Other assets Subordinated debt • Issue 20 billion in new lines of credit. o Credit conversion factor is 25%, oRisk weight is 100%. Share premium reserve Shareholder's equity • Issue 15 billion in new fixed-rate loans to corporate clients. o Average volume-weighted maturity is 5 years. o Risk weight is 100% o Funded entirely with newly issued 2-year certificates of deposit . Off the balance sheet, the bank holds $30 billion in lines of credit. In addition, it has $80 billion in 5-year interest rate swaps, currently $8 billion out of the money (all at reporting date 31 October 2022). The bank is now in the process of budgeting its balance sheet for the coming year (until 31 October 2023). The head of the credit department proposes the following objectives: 150 23 30 4 3 10 In addition, you know that • The sum of on-and off-balance sheet risk-weighted assets is $155 billion on 31 October 2022. $10 billion in risk-weighted assets is maturing between 31 October 2022 and 31 October 2023. • • The market for corporate loans is roughly $50 billion. In the past 5 years Lendy had a 15% market share in the corporate loans segment. The minimum Total Capital Adequacy Ratio is 8%, and the Conservation buffer is 2.5%. a. If Lendy Bank achieves the objectives set by the head of the credit department, will it be compliant with capital regulation on 31 October 2023? Interpret your findings. Hint: you only need to consider the Total Capital Adequacy Ratio. (3 marks) b. In addition to capital management, which other dimensions does Lendy need to take into account when budgeting these changes? Consider at least 3 other dimensions, and detail carefully. (9 marks)

Answer rating: 100% (QA)

aYes Lendy Bank will be compliant with capital regulation on 31 October 2023 The total capital adequacy ratio TCAR is the ratio of a banks total capital to its total riskweighted assets In this case t... View the full answer