A. TMK Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses. Assets Liabilities and Equity Cash (0%) $40 Deposits $350 Interbank deposits with AA rated banks (20%) $55 Subordinated debt (5 years) $20 Standard residential mortgages (50%) $100 Non-cumulative preference shares $15 Business loans to BB rated borrowers (100%) $210 Common equity $20 Total assets $405 Total liabilities and equity $405 In addition, TMK Bank has $40 million in performance-related standby letters of credit (SLCs) with credit conversion factor of 50%. Consider capital conservation buffer and assume that APRA suggests 1% countercyclical capital buffer due to COVID related effects. i. What is the total minimum capital required under Basel III? ii. Calculate Tier 1 CAR, Common Equity Tier 1 CAR, and Total CAR and compare them with Basel III requirements. iii. Does TMK Bank have enough capital to meet the regulatory capital requirements? Explain
A. TMK Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses. Assets Liabilities and Equity Cash (0%) $40 Deposits $350 Interbank deposits with AA rated banks (20%) $55 Subordinated debt (5 years) $20 Standard residential mortgages (50%) $100 Non-cumulative preference shares $15 Business loans to BB rated borrowers (100%) $210 Common equity $20 Total assets $405 Total liabilities and equity $405 In addition, TMK Bank has $40 million in performance-related standby letters of credit (SLCs) with credit conversion factor of 50%. Consider capital conservation buffer and assume that APRA suggests 1% countercyclical capital buffer due to COVID related effects. i. What is the total minimum capital required under Basel III? ii. Calculate Tier 1 CAR, Common Equity Tier 1 CAR, and Total CAR and compare them with Basel III requirements. iii. Does TMK Bank have enough capital to meet the regulatory capital requirements? Explain
Chapter1: Making Economics Decisions
Section: Chapter Questions
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A. TMK Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses.
Assets | Liabilities and Equity | ||
Cash (0%) | $40 | Deposits | $350 |
Interbank deposits with AA rated banks (20%) | $55 | Subordinated debt (5 years) | $20 |
Standard residential mortgages (50%) | $100 | Non-cumulative |
$15 |
Business loans to BB rated borrowers (100%) | $210 | Common equity | $20 |
Total assets | $405 | Total liabilities and equity | $405 |
In addition, TMK Bank has $40 million in performance-related standby letters of credit (SLCs) with credit conversion factor of 50%. Consider capital conservation buffer and assume that APRA suggests 1% countercyclical capital buffer due to COVID related effects.
i. What is the total minimum capital required under Basel III?
ii. Calculate Tier 1 CAR, Common Equity Tier 1 CAR, and Total CAR and compare them with Basel III requirements.
iii. Does TMK Bank have enough capital to meet the regulatory capital requirements? Explain.
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