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Question 1 (Basel I) a) Which bank, A or B, is riskier based on Basel I criteria for risk classification? Explain the results Bank A
Question 1 (Basel I) a) Which bank, A or B, is riskier based on Basel I criteria for risk classification? Explain the results Bank A Cash and T-Bonds Agency bonds (GNMA)$400.00 Mortgages Loans (AAA-rated Total Assets S300.00 Basel WeightsRisk-adjusted Assets 0% 20% $ 1,500.00 | 50% $2,000.00 | 100% $4,200.00 Bank B Cash and T-Bonds Agency bonds (GNMA) | $900.00 Mortgages Loans (B-rated Total Assets $600.00 Basel Weights Risk-adjusted Assets 10% | 2090 $2,000.00 | 5000 $700.00 | 100% $4,200.00 b) Assume that both banks have the same liabilities, as shown below. Are banks A and B in compliance with Basel I standards? If not, how much Tier I capital should they substitute for Tier II in other to be compliant with Basel I standards? Bank A and B Liabilities and Stockholder's Equity $2,000.00 $1,990.00 Demand deposits Time Deposits Subordinated Debt (Tier II $75.00 Preferred Stock (Tier II) Stockholder's Equity (Tier I $35.00 Retained Earnings (Tier I) $75.00 $25.00
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