Question
Management of XY bank wants to add $1,000 million in new corporate loans in 2020-2021. For all other asset categories the bank will simply replace
Management of XY bank wants to add $1,000 million in new corporate loans in 2020-2021. For all other asset categories the bank will simply replace maturing assets, as in, no changes in assets are budgeted except in corporate loans. The amounts in the table are in millions. Off-balance sheet items risk weighting are both 90%
1. Calculate the projected total risk-adjusted assets (on-and off-balance sheet) of the bank in fiscal year 2020-2021. Show working out.
2. XY bank funds the new corporate loans with $1,000 million in additional demand deposits in 2020-2021. Assume XY Bank wants to avoid any restrictions on dividend payouts. Using the Basel III capital framework ratios provided, does the projected capital structure allow XY Bank to issue the $1000 additional corporate loans? Show calculations and workings.
I will give thumbs up if answered.
On Balance sheet items
basel III requirements:Off balance sheet items:
Assets Cash Due from banks Government bonds Mortgage loans Corporate loans Other assets Risk weight (%) 0 20 20 75 125 Amount 500 500 3,000 5,000 7,000 2,000 Liabilities Demand deposits Long-term debt Subordinated debt (Tier 2) Share premium reserve Common shares Amount 12,000 4,500 300 200 1,000 0 Total 18,000 Total 18,000 Calibration of the Capital Framework Capital requirements and buffers (all numbers in percent) Common Equity Tier 1 Tier 1 Capital Total Capital 4.5 6.0 8.0 2.5 2.5 7.0 8.5 10.5 Minimum Conservation buffer Minimum plus conservation buffer 2.5 Current exposure Item Standby letters of credit 4-year forward FX contracts Amount $1,000 $1,400 Credit conversion factor 50% 10% $30 million in the money Assets Cash Due from banks Government bonds Mortgage loans Corporate loans Other assets Risk weight (%) 0 20 20 75 125 Amount 500 500 3,000 5,000 7,000 2,000 Liabilities Demand deposits Long-term debt Subordinated debt (Tier 2) Share premium reserve Common shares Amount 12,000 4,500 300 200 1,000 0 Total 18,000 Total 18,000 Calibration of the Capital Framework Capital requirements and buffers (all numbers in percent) Common Equity Tier 1 Tier 1 Capital Total Capital 4.5 6.0 8.0 2.5 2.5 7.0 8.5 10.5 Minimum Conservation buffer Minimum plus conservation buffer 2.5 Current exposure Item Standby letters of credit 4-year forward FX contracts Amount $1,000 $1,400 Credit conversion factor 50% 10% $30 million in the moneyStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started