Question
Monash Bank has the following balance sheet for 2018 (in millions of dollars). Assets Liabilities and equity Cash $15 Deposits $155 Interbank deposits with AA
Monash Bank has the following balance sheet for 2018 (in millions of dollars).
Assets | Liabilities and equity | ||
Cash | $15 | Deposits | $155 |
Interbank deposits with AA rated banks | 20 | Subordinated debt (5 years) | 4 |
Standard residential mortgages non-insured with LVR of 85% | 70 | Non-Cumulative preference shares | 6 |
Business Loans to BB rated borrowers | 70 | Common Equity | 10 |
Total assets | $175 | Total liabilities and equity | $175 |
In addition, the bank has $30 million in performance-related standby letters of credit (SLCs), $50 million in two-year forward FX contracts that are currently in the money by $4 million, and $300 million in six-year interest rate swaps that are currently out of the money by $1 million. Assume all off-balance sheet items counterparties are BBB+ rated according to Standard and Poors rating. Please refer to the tables at the end of the exam paper for the credit weights and conversion factors.
Meanwhile, the bank also has bank operational business specified as follows:
Half-year | Retail gross outstanding and advances $ million | Commercial gross outstanding loans and advances $ million | All other activity adjusted gross income $ million |
H1 20*1 | 38 | 73 | 0.9 |
H2 20*1 | 42 | 78 | 1.1 |
H1 20*2 | 35 | 81 | 1.2 |
H2 20*2 | 40 | 80 | 0.8 |
H1 20*3 | 42 | 77 | 0.9 |
H2 20*3 | 39 | 79 | 1.1 |
Additional information:
Capital Charge | ($Millions) |
Capital Charge for interest rate (IR) risk for bank book | 2 |
Capital Charge for market Risk | 2.5 |
Capital Charge for securitization Risk | 1 |
- Calculate the risk-adjusted assets credit risk for on-balance-sheet and off- balance sheet items of the bank as defined under the Basel III Accord?
(5 marks)
- Calculate the risk-adjusted assets for market risk, interest rate (IR) risk for bank book, securitization Risk?
(3 marks)
- Calculate the risk-adjusted assets for operational risk?
(4 marks)
(d) Does Monash Bank have enough capital to meet its regulatory capital requirements Common Equity Tier 1 (CET1), Tier 1 and total regulatory capital? If not, what is the minimum common equity Tier 1 (CET1), Tier 1 and total regulatory capital does it need to meet them? (Show the new balance sheet after adjustment)
(5 marks)
(5+ 3 + 4 + 5= 17 marks)
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