OZ Bank has the following balance sheet (in millions) and has no off-balance sheet activities:

Assets Liabilities and Equity

Deposits $2,900

Residential mortgages 400

Commercial loans, CCC+ rated 2,200 Subordinated debentures 170

Cash 50

U.S. Government Securities 50

Common stock 100

Commercial loans, BB+ rated 500 Retained earnings 30

Total assets $3,200 Total liabilities and equity $3,200

The bank's assets fall in four categories with various levels of credit risk. And residual

mortgages are viewed generally as safe as A-rated commercial loans in terms of default risk.

The risk weight assigned to each category is one of the following four numbers: 0, 0.5, 1, 1.5.

Each weight corresponds to one asset category.

1) What is the leverage ratio for OZ Bank? If a bank is perceived as adequately capitalized if its

leverage ratio is 4% or above. Is this bank adequately capitalized according to the leverage

ratio?

2) What are the bank's risk-adjusted assets?

3) What are the Tier-1 capital ratio and the total risk-based capital ratio for OZ Bank? Under

Basel II accord, the minimum capital ratios for capital adequacy are 4% and 8% for Tier-1 capital

ratio and the total risk-based capital ratio, respectively. Is the bank adequately capitalized

under Basel II Accord?

4) If you arrive at different conclusions in question 1) and question 3) about the bank's capital

adequacy, which one should be used to judge the bank's capital adequacy? Why?