1. What is the banks risk-weighted asset base under Basel III?

2. To be adequately capitalized, what are the banks CET1, Tier I, and total risk-based capital requirements under Basel II?

3. Using the leverage ratio requirement, what is the minimum regulatory capital required to keep the bank in the adequately capitalized zone?

4. Disregarding the capital conservation buffer, what is the banks capital adequacy level (under Basel III) if the par value of its equity is $225,000, surplus value of equity is $200,000, qualifying perpetual preferred stock is $50,000, subordinated debt is $50,000, and loan loss reserve is $85,000? Does the bank meet Basel (CET1, Tier I, total, and leverage) adequate capital standards? Does the bank comply with the well-capitalized leverage ratio requirement?

5. Does the bank have enough capital to meet the Basel requirements, including the capital conservation buffer requirement?

6. The banks various lines of business produced the following gross income:

Retail banking

$40,000

Commercial banking

50,000

Payment and settlement

15,000

Trading and sales

5,000

Asset management

10,000

What is the add-on to capital for operational risk? Does the bank have sufficient capital to cover this add-on and remain adequately capitalized, while meeting the capital conservation buffer?

On-Balance-Sheet Items Face Value Cash $121,600 Short-term government securities (92414,400 days) Federal Reserve stock 9,800 Repos secured by federal agencies 159,000 Claims on U.S. depository institutions 937,900 Loans to foreign banks, OECD CRC-rated 1,640,000 2 General obligation municipals 170,000 Claims on or guaranteed by federal agen- 26,500 cies Municipal revenue bonds 112,900 Residential mortgages category 1 5,000,000 Commercial loans 4,667,669 Loans to sovereigns, OECD CRC-rated 3 11,600 Premises and equipment 455,000 page 692 Off-Balance-SheetItemsU.S.GovernmentCounterpartyLoancommitments:Conver-sionFac-tor20%FaceVe$3001,140 Standby letters of credit: \begin{tabular}{lrr} \multicolumn{1}{l}{ Performance related } & 50% & 200 \\ \multicolumn{2}{l}{ Direct-credit substitute } & 100 \\ U.S. Depository Institutions & 100% & \\ Counterparty & \\ Loan commitments: & & 100 \\ 20% & 3,000 \\ >1 year & 50% & \end{tabular} Standby letters of credit: Standby letters of credit: Performance-relatedDirect-creditsubstituteCommerciallettersofcredit50%100%20%101,543490,90078,978 Sovereign Counterparty Loan commitments, OECD CRC rated 1: 1 year 50%1,225,400 Sovereign Counterparty Loan commitments, OECD CRC rated 2: 1year20%50%85,000115,500 Sovereign Counterparty Loan commitments, OECD CRC rated 7: >1 year 50%30,000 Interest rate market contracts (current exposure assumed to be zero): \begin{tabular}{lcc} 15 years (notional amount) & 0.5% & 5,000 \\ \hline \end{tabular} On-Balance-Sheet Items Face Value Cash $121,600 Short-term government securities (92414,400 days) Federal Reserve stock 9,800 Repos secured by federal agencies 159,000 Claims on U.S. depository institutions 937,900 Loans to foreign banks, OECD CRC-rated 1,640,000 2 General obligation municipals 170,000 Claims on or guaranteed by federal agen- 26,500 cies Municipal revenue bonds 112,900 Residential mortgages category 1 5,000,000 Commercial loans 4,667,669 Loans to sovereigns, OECD CRC-rated 3 11,600 Premises and equipment 455,000 page 692 Off-Balance-SheetItemsU.S.GovernmentCounterpartyLoancommitments:Conver-sionFac-tor20%FaceVe$3001,140 Standby letters of credit: \begin{tabular}{lrr} \multicolumn{1}{l}{ Performance related } & 50% & 200 \\ \multicolumn{2}{l}{ Direct-credit substitute } & 100 \\ U.S. Depository Institutions & 100% & \\ Counterparty & \\ Loan commitments: & & 100 \\ 20% & 3,000 \\ >1 year & 50% & \end{tabular} Standby letters of credit: Standby letters of credit: Performance-relatedDirect-creditsubstituteCommerciallettersofcredit50%100%20%101,543490,90078,978 Sovereign Counterparty Loan commitments, OECD CRC rated 1: 1 year 50%1,225,400 Sovereign Counterparty Loan commitments, OECD CRC rated 2: 1year20%50%85,000115,500 Sovereign Counterparty Loan commitments, OECD CRC rated 7: >1 year 50%30,000 Interest rate market contracts (current exposure assumed to be zero): \begin{tabular}{lcc} 15 years (notional amount) & 0.5% & 5,000 \\ \hline \end{tabular}