Reference no: EM132975095
Question - Deli bank has the following balance sheet (in '000) with the risk weights in parentheses.
Assets
Cash (0%) $20,000
OECD Interbank deposits (20%) $25,000
Mortgage loans (50%) $70,000
Consumer loans (100%) $70,000
Total Assets $185,000
Liabilities and Equity
Deposits $175,000
Subordinated debt (2.5 years) $3,000
Cumulative preferred stock $5,000
Equity $2,000
Total Liabilities & Equity $185,000
In addition, the bank has $30,000 in performance-related standby letters of credit (SLCs), and $300,000 in six-year interest rate swaps. Credit conversion factors follow:
Performance-related standby LCs 50%
1-5 year foreign exchange contracts 5%
1-5 year interest rate swaps 0.5%
5-10 year interest rate swaps 1.5%
Required -
a. What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basle Accord?
b. What is the total capital required for both off- and on-balance-sheet assets?
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.