Page 8 Question 5 a) Be-Rish Bank has the following Balance Sheet (in millions) and has...

 

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Page 8 Question 5 a) Be-Rish Bank has the following Balance Sheet (in millions) and has no off-balance- sheet activities. Suppose the goodwill is $0. Assets Cash Treasury bills Residential mortgages (category 1: loan-to- value ratio = 40%) Business loans Total assets $60 110 BUS201 (2022) 780 900 $1.850 Liabilities and Equity Deposits Subordinated debentures Common stock $1,370 130 250 Retained earnings 100 Total liabilities and equity $1,850 i) The risk weight for residential mortgages (category 1; loan-to-value ratio = 40%) is 35%. Calculate the risk-adjusted assets. Show workings. [2 marks] ii) Calculate the CET1 risk-based ratio, Tier I risk-based capital ratio, total risk-based capital ratio and leverage ratio. Show workings. [10 marks] iii) Suppose the Be-Rich Bank receives additional $600,000 in deposits and invests them in Treasury bills, what is the effect on the CET1 risk-based ratio? Show workings when necessary. [2 marks] iv) Suppose the Be-Rich Bank repurchases $1.5 million of common stock with cash, what is the effect on the risk-weighted assets? Comment on your answer. [2 marks] b) Why are commercial banks mandated to maintain specific reserve requirements? [14 marks] [Total marks: 30 marks] Page 8 Question 5 a) Be-Rish Bank has the following Balance Sheet (in millions) and has no off-balance- sheet activities. Suppose the goodwill is $0. Assets Cash Treasury bills Residential mortgages (category 1: loan-to- value ratio = 40%) Business loans Total assets $60 110 BUS201 (2022) 780 900 $1.850 Liabilities and Equity Deposits Subordinated debentures Common stock $1,370 130 250 Retained earnings 100 Total liabilities and equity $1,850 i) The risk weight for residential mortgages (category 1; loan-to-value ratio = 40%) is 35%. Calculate the risk-adjusted assets. Show workings. [2 marks] ii) Calculate the CET1 risk-based ratio, Tier I risk-based capital ratio, total risk-based capital ratio and leverage ratio. Show workings. [10 marks] iii) Suppose the Be-Rich Bank receives additional $600,000 in deposits and invests them in Treasury bills, what is the effect on the CET1 risk-based ratio? Show workings when necessary. [2 marks] iv) Suppose the Be-Rich Bank repurchases $1.5 million of common stock with cash, what is the effect on the risk-weighted assets? Comment on your answer. [2 marks] b) Why are commercial banks mandated to maintain specific reserve requirements? [14 marks] [Total marks: 30 marks]

Answer rating: 100% (QA)

a i The risk weight for residential mortgages category 1 loantovalue ratio 40 is 35 To calculate the riskadjusted assets for residential mortgages we multiply the amount of residential mortgages by th... View the full answer