Star Bank has estimated that its average VAR over the last 60 days was £35.5 million. The DEAR of the previous day was £30.2 million. Under the latest BIS standards. a) Determine the amount of capital to be held for market risk. b) The bank has £15 million of Tier 1 capital, £37.5 million of Tier 2 capital and £54 million of Tier 3 capital. Is the capital sufficient? If not, what minimum amount and type of new capital should be raised? (Note that capital can be raised from any type subject to Tier 3 capital is limited to 250% of Tier 1 and Tier 2 can be substituted for Tier 3 up to the same 250% limit.)
Star Bank has estimated that its average VAR over the last 60 days was £35.5 million. The DEAR of the previous day was £30.2 million. Under the latest BIS standards. a) Determine the amount of capital to be held for market risk. b) The bank has £15 million of Tier 1 capital, £37.5 million of Tier 2 capital and £54 million of Tier 3 capital. Is the capital sufficient? If not, what minimum amount and type of new capital should be raised? (Note that capital can be raised from any type subject to Tier 3 capital is limited to 250% of Tier 1 and Tier 2 can be substituted for Tier 3 up to the same 250% limit.)
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 27P
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Question
![Star Bank has estimated that its average VAR over the last 60 days was £35.5
million. The DEAR of the previous day was £30.2 million. Under the latest BIS
standards.
a) Determine the amount of capital to be held for market risk.
b)
The bank has £15 million of Tier 1 capital, £37.5 million of Tier 2 capital and
£54 million of Tier 3 capital. Is the capital sufficient? If not, what minimum
amount and type of new capital should be raised? (Note that capital can be
raised from any type subject to Tier 3 capital is limited to 250% of Tier 1 and
Tier 2 can be substituted for Tier 3 up to the same 250% limit.)
Solution
a) £106.5m
b) £4.71m](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5452c0be-32f0-43d6-b4ec-9da5bdf0b8c1%2Fd8471b20-c45d-49bc-9454-1d942926f2ce%2Ffohpvp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Star Bank has estimated that its average VAR over the last 60 days was £35.5
million. The DEAR of the previous day was £30.2 million. Under the latest BIS
standards.
a) Determine the amount of capital to be held for market risk.
b)
The bank has £15 million of Tier 1 capital, £37.5 million of Tier 2 capital and
£54 million of Tier 3 capital. Is the capital sufficient? If not, what minimum
amount and type of new capital should be raised? (Note that capital can be
raised from any type subject to Tier 3 capital is limited to 250% of Tier 1 and
Tier 2 can be substituted for Tier 3 up to the same 250% limit.)
Solution
a) £106.5m
b) £4.71m
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