As a financial institution and market analyst for WatchYourBack.Com Securities, Inc., a highly reputable financial institutions' securities underwriter and Internet broker, you must prepare an analysis of the financial condition of a broad range of financial institutions of various sizes, localities, and product lines. Using the "probability of insolvency" model discussed in a class where E(ROA) is the expected annual value of after-tax earnings on assets over the next 2 years, s2is the expected annual variance of ROA over the next 2 years, and K/A is the firm's current Tier I Capital, K, to total assets, A (a) discuss, based upon your assumptions concerning the risk-return tradeoff embodied in the efficient frontier of possible FI portfolios, what factors determine each of these parameters of financial soundness over the next few years. (b) Besides, discuss how the federal regulatory capital adequacy policy, in the form of risk-based capital adequacy standards and Prompt Corrective Action (and as proposed in Basel III and the Volcker Rule), might affect bank and thrift soundness and depository institutions portfolio choices by comparing points A and B below and different choices of capitalization as revealed in the FI's choice of K/A. In this discussion, how does the "too-big-to-fail" policy affect the bank's choice of risk and return and willingness to take risks? Are moral hazard costs increased under a liberal "too-big-to-fail" policy, and have the expanded powers of FIs following the Gramm-Leach-Bliley Act's passage increased or decreased these costs? Which bank portfolio, A with [K/A]0 or B with [K/A]1, has the greater maximum likelihood of insolvency and why? From this conclusion, which bank portfolio could sustain a greater loss of capital value at a 5 percent confidence level assuming ROA is distributed as a normal variable with mean E(ROA) and variance s2? NOTE: the maximum probability of insolvency = s2/[E(ROA) + K/A]2 (as derived from Chebychev's Inequality Theorem). Insolvency means falling below a portfolio valuation of zero. . As a financial institutions and market analyst f