Question

1. Use the following information for questions a) – f).

Bank Assets		Risk Weight	Bank Liabilities
Cash and Treasury Securities	$8,000	0%	Deposits	$32,000
Municipal Bonds	$6,000	20%	Hot Money	$25,000
Repurchase Agreements	$4,000	20%	Subordinated Debt	$1,000
CMOs	$10,000	50%	Common Stock	$1,000
Single Family Home Mortgage	$15,000	50%	Surplus	$1,200
Commercial Loans	$10,000	100%	Retained Earnings	$1,800
Agriculture Loans	$5,000	100%
Allowance for Loan Loss	($3,000)	0%
Bank Buildings	7,000	100%
Total	$62,000			$62,000

1. How much Tier 1 capital does the bank have?
2. What is the minimum leverage capital for this bank?
3. What is the amount of risk-adjusted assets for the bank?
4. What is the minimum Tier 1 capital for this bank is?
5. What is the minimum total capital for this bank?
6. What is the total amount of the bank's regulatory capital?

Answer 1

Soultion:

1. How much Tier 1 capital does the bank have?

Tier 1 capital includes common shares, stock surpluses, common shares issued by subsidiaries, retained earnings and accumulated OCI.

Tier 1 capital = Common stock + Surplus + Retained earnings = 1000 + 1200 + 1800 = $4,000.

2. What is the minimum leverage capital for this bank?

Minimum leverage capital = 3% of bank total assets = 0.03 * 62000 = $1,860

3. What is the amount of risk-adjusted assets for the bank?

Risk adjusted assets = 0*8000 + 0.2*6000 + 0.2*4000 + 0.5*10000 + 0.5*5000 + 1*10000 + 1*5000 + 0*-3000 + 1*7000 = $36,500

4. What is the minimum Tier 1 capital for this bank is?

Minimum Tier 1 capital = 6% of bank risk-adjusted assets = 0.06 * 36500 = $2,190.

What is the minimum total capital for this bank?

Minimum Total capital = 8% of bank risk-adjusted assets = 0.08 * 36500 = $2,920.

5. What is the total amount of the bank's regulatory capital?

Total amount of the bank's regulatory capital = Tier 1 capital + Tier 2 capital

Tier 1 capital = Common stock + Surplus + Retained earnings = 1000 + 1200 + 1800 = $4,000.

Tier 2 capital = Subordinated debt = $1,000

Total amount of the bank's regulatory capital = 4000 + 1000 = $5,000