Question
Assume that $100 million face value of MBS were used to create the following tranches issued by Quick Money SPV: Bond Rating Amount in million
Assume that $100 million face value of MBS were used to create the following tranches issued by Quick Money SPV:
| Bond Rating | Amount in million | Allocation in % | Risk weights for CAR (APRA APS 120) |
| Aaa | $ 30 |
| 20% |
| Aa1 | $ 20 |
| 20% |
| Aa2 | $ 10 |
| 20% |
| Aa3 | $ 5 |
| 20% |
| A1 | $ 5 |
| 50% |
| A2 | $ 5 |
| 50% |
| A3 | $ 5 |
| 50% |
| Baa1 | $ 5 |
| 100% |
| Baa2 | $ 5 |
| 100% |
| Baa3 | $ 5 |
| 100% |
| Ba1 | $ 5 |
| 350% |
| Assets | Liabilities and equity | ||
| Cash | $10 | Demand deposits | $90 |
| Quick Money Aaa tranche | $15 | Equity | $10 |
| Quick Money Ba1 tranche | $5 |
|
|
| Loans (risk weight 100%) | $70 |
|
|
| Bond Rating | Amount in million | Risk weights for CAR (APRA APS 120) | RWA in $m for the bank buying the whole tranche |
| Aaa | $ 30 | 20% |
|
| Aa1 | $ 20 | 20% |
|
| Aa2 | $ 10 | 20% |
|
| Aa3 | $ 5 | 20% |
|
| A1 | $ 5 | 50% |
|
| A2 | $ 5 | 50% |
|
| A3 | $ 5 | 50% |
|
| Baa1 | $ 5 | 100% |
|
| Baa2 | $ 5 | 100% |
|
| Baa3 | $ 5 | 100% |
|
| Ba1 | $ 5 | 350% |
|
| Total |
|
|
|
If Clever Bank keeps all its loans on its balance sheet, its RWA would be exactly $____m. However, if it does the deal with Quick Money its RWA would be $____m. This is an (advantage/disadvantage) for a capital management point of view. Did the actual riskiness of the assets change?
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Business Finance
Authors: Ronald R. Pitfield
1st Edition
0852581513, 978-0852581513
