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A commercial bank has provided the balance sheet below. It has no off-balance sheet activities. Commercial loans have a 100% loan-to-value risk weight and construction

A commercial bank has provided the balance sheet below. It has no off-balance sheet activities. Commercial loans have a 100% loan-to-value risk weight and construction loans have a 50% loan-to value risk weight.

Assets ($ millions) Liabilities and Equity ($ millions)

Cash $ 32 Deposits $ 945

U.S. Treasury securities 84 Subordinated debentures 62

Commercial loans 755 Common stock 34

Construction loans 184 Retained earnings 14

Total Assets $ 1,055 Total Liabilities and Equity $ 1,055

a. Calculate each of the following ratios. For each ratio, also explain which capital category zone the bank falls into. (6 points each)

i. CET1 risk-based capital ratio

ii. Tier I risk-based capital ratio

iii. Total risk-based capital ratio

iv. Tier I leverage ratio

b. Given your calculations and the capital categories in a., what prompt corrective actions will be required of the bank by its regulators? Explain. (5 points)

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