Reference no: EM132505421

Third Bank has the following balance sheet (in millions), with the risk weights in parentheses.

Assets

Cash (0%)                                                        21

OECD interbank deposits(20%)                             25

Mortgage loans (50%)                                       70

Consumer loans (50%)                                          70

Reserve for loan losses                                              (1)

Total Assets USD                                                  185

Liabilities and Equity

Deposits USD                                                         176

Subordinated debt(5 years)                           2

Cumulative preferred stock                                        2

Equity                                                                 5

Total liabilities and equity USD                                  185

• The cumulative preferred stock is qualifying and perpetual. in addition the bank has USD 30 million in performance-related standby letters of credit (SLCs) to a public corporation, USD 40 million in two-year forward FX contracts that are currently in the money by USD 1 million and USD 300 million in six-year rate swaps that are currently out of the money by USD2 million. Credit conversion factors follow:

Performance-related standby letters of credit 50%

1- to 5-year foreign exchange contracts 5%

1- to 5-year interest rate swaps 0.5%

5- to 10-year interest rate swaps 1.5%

Question A. What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basel Accord?

Question B. To be adequately capitalized, what are the CET1, Tier I, and total capital required for both off- and on-balance-sheet assets?

Question C. Disregarding the capital conservation buffer, does the bank have enough capital to meet the Basel requirements? If not, what minimum CET1, additional Tier I, or total capital does it need to meet the requirement?

Question D. Does the bank have enough capital to meet the Basel requirements, including the capital conservation buffer requirement? If not, what minimum CET1, additional Tier I, or total capital does it need to meet the requirement?