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Onshore Bank has $37 million in assets, with risk-adjusted assets of $27 million. Core Equity Tier...

Onshore Bank has $37 million in assets, with risk-adjusted assets of $27 million. Core Equity Tier 1 (CET1) capital is $1,250,000, additional Tier I capital is $480,000, and Tier II capital is $434,000. The current value of the CET1 ratio is 4.63 percent, the Tier I ratio is 6.41 percent, and the total capital ratio is 8.01 percent.

Calculate the new value of CET1, Tier I, and total capital ratios for the following transactions.

  1. The bank issues $2.7 million in nonqualifying perpetual preferred stock and purchases general obligation municipal bonds.
  2. Homeowners pay back $5.7 million of mortgages with loan-to-value ratios of 50 percent and the bank uses the proceeds to build new ATMs.
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Answer #1

Given information:

Core Equity Tier I Capital = $1,250,000

Additional Tier I Capital = $480,000

Tier II Capital = $434,000

Current CET1 Ratio = 4.63%

Tier I Ratio = 6.41%

Total Capital Ratio = 8.01%

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