Let us assume that you have been asked to calculate risk-based capital ratios for Marissa Bills (MB) Bank, a regional commercial bank, with the following accounts: Cash $10 million Government securities 58 million Mortgage loans $33 million Other loans $55 million Fixed assets $ 15 million Intangible assets $2 million Loan-loss reserves 56 million Common equity $8 million Trust-preferred securities $4 million Cash assets and government securities are not considered risky. Loans secured by real estate have a 50% weighting factor. All other loans have a 100% weighting factor in terms of riskiness. a. Calculate the common equity capital ratio of MB Bank. At the year-end, if the MB Bank has $2 million in bad mortgage loans, how the common equity capital ratio would change? b Calculate the Tier 1 capital ratio of MB Bank using risk-adjusted assets. c. Calculate the total capital (Tier 1 plus Tier 2) capital ratio of MB Bank using risk-adjusted assets. d. As a manager of MB Bank, what actions could you take if the central bank (i. e.. Federal Reserve Bank) increases the regulatory requirements of Tier 1 and Total Capital ratios across the commercial banking industry?
Let us assume that you have been asked to calculate risk-based capital ratios for Marissa Bills (MB) Bank, a regional commercial bank, with the following accounts: Cash $10 million Government securities 58 million Mortgage loans $33 million Other loans $55 million Fixed assets $ 15 million Intangible assets $2 million Loan-loss reserves 56 million Common equity $8 million Trust-preferred securities $4 million Cash assets and government securities are not considered risky. Loans secured by real estate have a 50% weighting factor. All other loans have a 100% weighting factor in terms of riskiness. a. Calculate the common equity capital ratio of MB Bank. At the year-end, if the MB Bank has $2 million in bad mortgage loans, how the common equity capital ratio would change? b Calculate the Tier 1 capital ratio of MB Bank using risk-adjusted assets. c. Calculate the total capital (Tier 1 plus Tier 2) capital ratio of MB Bank using risk-adjusted assets. d. As a manager of MB Bank, what actions could you take if the central bank (i. e.. Federal Reserve Bank) increases the regulatory requirements of Tier 1 and Total Capital ratios across the commercial banking industry?
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 13 images
