Reference no: EM133000698
Question - At the beginning of 2020, Atlantis Bank had risk weighted assets of $20 million, Total Tier 1 capital of $1.4 million and Total Tier 2 capital of $1 million. Included in Tier 1 and Tier 2 capital was a hybrid security with a total value of $100,000. Regulations allow 25% of this to be classified as Tier 1 with the remainder classified as Tier 2.
Transactions during 2020:
-February: Cash dividends of $100,000 were paid from retained earnings.
-March: The Bank raised $500,000 from an issue of ordinary common shares.
-June: The Bank invested $1 million in new offices.
-September: $5 million in fully secured (is, fully insured) housing loans (LVR is 92%) were repaid. $2 million was invested in unsecured housing loans (LVR is 105%) and the remaining $3 million invested in Australian Government Bonds. End of year:
At the end of the year APRA reclassified hybrid securities so that only 15% could be classified as Tier 1 and the remainder had to be classified as Tier 2.
Using the 'Base Case' data and the February transaction only [transaction (a) above], by how much have risk weighted assets changed?
a. $0
b. Decreased by $50,000
c. Decreased by $100,000
d. Increased by $100,000
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