Question 2 (15 marks) Michael Bank currently has a portfolio made up of the following assets: a) S1,000,000 secured loan, b) S10,000,000 central govemment loan, c) $8,000,000 commercial LOC, d) $6,000,000 consumer loan, and e) $8,800,000 standby LOC. Calculate the amount of regulatory capital required to meet a capital adequacy ratio of 10% by employing the intemal risk weighting and credit conversion factor for various assets and off-balance- sheet items as listed below. Illustrate the calculation clearly by showing the value and risk bucket group for each asset individually after conversion (if required) (15 marks): 1. 2. Risk Bucket Loans Domestic Central Govt. Public Entities, Foreign Governments (OECD). Banking Secured Lending Commercial and consumer loans Risk Weights 0% 20% 3. 14 50% 100% Type Standby LOC, Guarantees cer 1. Equivalent risk bucket Commercial and consumer loans 100% LT Loan Commitments 50% Commercial and consumer loans 23 Commercial LOC 20% Secured Lending 2 0 FI F2 000 000 F3 F4 F5 14. 0-15% Financial Derivatives (depends on type & maturity) ST Loan Commitments Public Entities, Foreign Governments (OECD), Banking Commercial and consumer loans K. 0%