Role played by equity capital on bank balance sheet

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According to its Interim 2017 results, Westpac had total assets of $840bn, risk-weighted assets of $404.4bn, and equity capital of $40.3bn. Its customer deposits were $478.7bn.

Distinguish between total assets and risk-weighted assets. What was the total value of all sources of funding used by Westpac at this point in time, excluding customer deposits and equity capital? Explain how you have calculated your answer.

What is the main role played by equity capital on a bank’s balance sheet? What is its purpose?

The Australian Prudential Regulatory Authority announced during 2017 a requirement for Australia’s four major banks to achieve a Capital Adequacy Ratio (CAR) of at least 10.5% by 2020. Has Westpac yet met that requirement? Show your workings and explain your answer.

Suppose a bank has not yet met the CAR requirement. Identify three methods the bank could use to increase its CAR.

What does it mean to say Westpac is ‘too big to fail’? What ‘moral hazard’ results from a bank being ‘too big to fail’?

Reference no: EM132048685

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