Third Fifth Bank has the following balance sheet (in millions), with the risk weights in parentheses.
Assets
Liabilities and Equity
Cash (0%)
$20
Deposits
$130
Mortgage loans (50%)
50
Subordinated debt (>5 years)
5
Consumer loans (100%)
70
Equity
Total assets
$140
Total liabilities and equity
In addition, the bank has $20 million in commercial standby letters of credit to a BB-rated corporation and $40 million in 10-year FX forward contracts that are in the money by $1 million. What are the risk-adjusted on-balance-sheet assets of the bank as defined under Basel II? What is the total capital required for both off- and on-balance-sheet assets? Does the bank have sufficient capital to meet the Basel requirements? How much in excess? How much short?
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