What was the atlantis bank total regulatory capital adequacy

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Reference no: EM132913847

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 (ie. 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.

Problem 1: What was the Atlantis Bank's total regulatory capital adequacy ratio at the beginning of 2020?

Option 1: 10.00%
Option 2: 8.00%
Option 3: 13.50%
Option 4: 12.00%

Reference no: EM132913847

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