What are major differences of capital adequacy requirements

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Question - CCC Bank in the United States has US$500 billion in assets in the balance sheet of which US$200 billion is U.S. Treasuries, US$200 billion residential mortgages and US$100 billion loans extended to various U.S. corporations.

1. Explain how much capital the Bank is required in order to comply with the capital adequacy requirement (CAR) under Basel I Accord.

2. Under the International Swaps and Derivatives Master Agreement if the Bank has 3 interest rate swaps with DEF Company, the counterparty, which worth +US$40mm, -US$10mm, +US$10mm in the bank's book. Explain if DEF Company defaults, how much would the Bank lose without and with netting?

3. What are the major differences of capital adequacy requirements under Basel I and II Accord, and why despites different stages of Basel requirements over the last decades, the finance industry still does not seem to be a safer place.

Reference no: EM133146330

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