B. UPO Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses. $350 8 Assets Cash (0%) Interbank deposits with AA rated banks (20%) Standard residential mortgages (50%) Business loans to BB rated borrowers (100%) Total assets Liabilities and equity $30 Deposits Subordinated debt 35 (5 years) Non-cumulative preference 90 shares Common equity 220 7 10 $375 Total liabilities and equity $375 In addition, UPO Bank has $40 million in performance-related standby letters of credit (SLCs) with credit conversion factor of 50%. i. What is the total minimum capital required under Basel III? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [2 marks] ii. Does UPO Bank have enough capital to meet the regulatory capital requirements? Calculate Tier 1 CAR, Common Equity Tier 1 CAR, and Total CAR and compare them with Basel III requirements. Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [3 marks] iii. What additional Common Equity Tier 1 capital does UPO need to meet the minimum capital adequacy requirement? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [1 mark] B. UPO Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses. $350 8 Assets Cash (0%) Interbank deposits with AA rated banks (20%) Standard residential mortgages (50%) Business loans to BB rated borrowers (100%) Total assets Liabilities and equity $30 Deposits Subordinated debt 35 (5 years) Non-cumulative preference 90 shares Common equity 220 7 10 $375 Total liabilities and equity $375 In addition, UPO Bank has $40 million in performance-related standby letters of credit (SLCs) with credit conversion factor of 50%. i. What is the total minimum capital required under Basel III? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [2 marks] ii. Does UPO Bank have enough capital to meet the regulatory capital requirements? Calculate Tier 1 CAR, Common Equity Tier 1 CAR, and Total CAR and compare them with Basel III requirements. Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [3 marks] iii. What additional Common Equity Tier 1 capital does UPO need to meet the minimum capital adequacy requirement? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [1 mark]
