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What is the total capital required for both off- and on-balance-sheet assets?

What is the total capital required for both off- and on-balance-sheet assets?

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 18MCQ
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b) What is the total capital required for both off- and on-balance-sheet assets?

3:22 ull Financial Risk Management ECF520 Assignment One (1) ... [ECF 520-FINANCIALRISKMANAGEMENT] Que stion One Nienge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Liabilities and Equity Deposits Subordinated debt (2.5 years) Assets (0%) K20 OECD Interbank deposits (20%) K25 Cash K175 K3 Mortgage loans Consumer loans (50%) K70 (100%) K70 K185 Cumulative pre ferred stock Equity Total Liabilities & Equity K5 K2 Total Assets K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCS), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 1-5 year foreign exchange contracts 1-5 year interest rate swaps 5-10 year interest rate swaps 50% 5% 0.5% 1.5% Required a. What are the risk-adjusted on-balance-sheet assets of the bank as de fined under the Basle Accord? b. What is the total capital required for both off- and on-balance-sheet assets? 1 c. Does the bank have enough capital to meet the Basle requirements? If not, what minimum Tier 1 or total capital does it need to meet the requirement? d. Discuss the major shortcomings of the Basle I accord. Question Two Risk in the widest sense is not new to business. All companies are exposed to traditional business risks: earnings go up and down as a result of such things as changes in the business environment, in the nature of competition, in production technologies, and in factors affecting suppliers. The issue of risk has captured considerable attention from corporate management in recent years, as financial risk management has hecome a critical cornorate activity. Regulators have also
Transcribed Image Text:3:22 ull Financial Risk Management ECF520 Assignment One (1) ... [ECF 520-FINANCIALRISKMANAGEMENT] Que stion One Nienge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Liabilities and Equity Deposits Subordinated debt (2.5 years) Assets (0%) K20 OECD Interbank deposits (20%) K25 Cash K175 K3 Mortgage loans Consumer loans (50%) K70 (100%) K70 K185 Cumulative pre ferred stock Equity Total Liabilities & Equity K5 K2 Total Assets K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCS), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 1-5 year foreign exchange contracts 1-5 year interest rate swaps 5-10 year interest rate swaps 50% 5% 0.5% 1.5% Required a. What are the risk-adjusted on-balance-sheet assets of the bank as de fined under the Basle Accord? b. What is the total capital required for both off- and on-balance-sheet assets? 1 c. Does the bank have enough capital to meet the Basle requirements? If not, what minimum Tier 1 or total capital does it need to meet the requirement? d. Discuss the major shortcomings of the Basle I accord. Question Two Risk in the widest sense is not new to business. All companies are exposed to traditional business risks: earnings go up and down as a result of such things as changes in the business environment, in the nature of competition, in production technologies, and in factors affecting suppliers. The issue of risk has captured considerable attention from corporate management in recent years, as financial risk management has hecome a critical cornorate activity. Regulators have also
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