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a) The National Bank has the following balance sheet (in millions) and has no off-balance-sheet activities. Suppose the goodwill is $0. Specifications of Capital Categories
a) The National Bank has the following balance sheet (in millions) and has no off-balance-sheet activities. Suppose the goodwill is $0. Specifications of Capital Categories for Prompt Corrective Action i) We know that the risk weight for residential mortgages (category 1 ; loan-to-value ratio =40% ) is 35%. Calculate the risk-adjusted assets. Please show each step of your calculation. [8 marks] ii) Calculate the CET1 risk-based ratio, Tier I risk-based capital ratio, total risk-based capital ratio, and leverage ratio. Please show each step of your calculation and explain in what capital risk category would National Bank be placed. [12 marks] b) The regulators have developed four layers of protective mechanisms to ensure the safety and soundness of commercial banks. Explain the four layers of protective mechanisms. Also show how the mechanisms can balance a commercial 'bank's profitability against its solvency, liquidity, and other types of risks. [10 marks] [Total marks: 30 marks]
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