QUESTION 24

B4

On a scrap paper, make the calculations necessary to answer the questions below. Then use your draft to fill the following multiple blanks. The scrap paper will not be uploaded but needs to be kept for future reference.

A bank has Risk-Weighted Assets (RWA) of $400,000 and total assets of $600,000. The banks regulatory capital is shown in the table below.

The country applies a 0.5% countercyclical buffer. Basel III capital regulation applies.

Common Equity Tier 1 (CET1)	$22,000
Additional Tier 1	$4,000
Tier 2	$12,000

The actual CET1 ratio of this bank is . Round up your result to 3 decimal place. Do not show the calculations.

The required amount of Tier 1 capital to meet the Tier 1 minimum requirement is . Do not type the $ sign.

This bank meets the minimum capital requirements . Type F for fully,P for partially or N for not at all.

The additional amount of CET1 (on top of the required minimum CET1) required to meet the Tier 1 minimum requirement is . Do not type the $sign.

The amount of free CET1 capital after meeting the Basel III minimum capital requirements is . Do not type the $ sign.

This bank meets the conservation buffer . Type Y for Yes, N for No, or ? if the question does not provide enough information to conclude.

On the basis of the information above, the bank will be asked to .

Type 1 if the bank needs to restructure its assets.

Type 2 if the bank needs to reduce the payment of bonuses to its employees

Type 3if no action is required.

Imagine that the Northern Territory government credit rating is downgraded by Moody's to Ba1.

Using the table of conversion provided here:

Indicate the credit rating grade associated with lending to the Northern Territory government: Only type a number.

Indicate the risk weight that should be used for that asset when calculating RWA %. If the weight is 120% type 120.

January 2013 Table 9: Recognised long-term ratings and equivalent credit rating grades Fitch Ratings Credit rating grade Standard & Poor's Corporation AAA Moody's Investor Services 1 AAA AA+ Aal AA+ AA Aa2 AA AA- Aa3 AA- 2 A+ Al A+ AA- A2 A A3 A- 3 BBB+ BBB+ Baal Baa2 BBB BBB BBB- Baa3 BBB- 4 BB+ Bal BB+ BB Ba2 BB BB- Ba3 BB- 5 B+ B1 B+ B B2 B B- B3 B- 6 CCC+ Caal CCC+ Caa2 CCC- Caa3 CCC- Ca CC CC D D Table 10: Recognised short-term ratings and equivalent credit rating grades Fitch Ratings Credit rating grade Standard & Poor's Corporation Moody's Investor Services 1 A-1 P-1 F-1 2 A-2 P-2 F-2 APS 112 Attachment F-36 January 2013 Fitch Ratings Credit rating grade Standard & Poor's Corporation Moody's Investor Services 3 A-3 P-3 F-3 4 Others Others Others Class 1 - Cash items Credit Rating Grade Risk Weight % Notes and coins. All Australian dollar balances and other Australian dollar claims on the RBA 0 Class II - Claims on Australian and foreign governments and central banks Credit Rating Grade Risk Weight % All Australian dollar claims on the Australian 0 Government. 1 0 Claims on overseas central governments and 2 20 state or regional governments, State or 3 50 Territory Governments in Australia 4 or 5 100 Claims on local governments and non- 1 20 commercial public sector entities in Australia 2 50 and overseas 3,4,5 100 Class III - Claims on ADls and overseas banks Risk Weight % Credit Rating Grade 1, 2, 3 20 4,5 50 Claims (other than equity) on ADls and overseas banks, being claims with an original maturity of three months or less Claims (other than equity) on ADls and overseas banks with an original maturity of more than three months 1 2,3 4,5 20 50 100 Class IV - Claims secured against eligible residential mortgages LVR% Standard eligible mortgages Risk weight Risk weight (no mortgage insurance) (with mortgage insurance) % % 0 - 80 35 35 80.01 - 90 50 35 90.01 - 100 75 50 >100.01 100 75 Class VII - Other assets and claims Risk Weight % 20 50 Claims (other than equity) on Australian and international corporate counterparties (including insurance and securities companies) and commercial public sector entities Alternatively, Credit Rating Grade 1 2 3,4 5,6 unrated 100 150 100 100 1 In order to obtain approval, an ADI will be required to satisfy APRA that the capital requirement resulting from a 100 per cent risk-weight for these claims is not materially less than the capital requirement which would apply if credit ratings were used or the cost of using credit ratings for these exposures outweighs the benefits. January 2013 Table 9: Recognised long-term ratings and equivalent credit rating grades Fitch Ratings Credit rating grade Standard & Poor's Corporation AAA Moody's Investor Services 1 AAA AA+ Aal AA+ AA Aa2 AA AA- Aa3 AA- 2 A+ Al A+ AA- A2 A A3 A- 3 BBB+ BBB+ Baal Baa2 BBB BBB BBB- Baa3 BBB- 4 BB+ Bal BB+ BB Ba2 BB BB- Ba3 BB- 5 B+ B1 B+ B B2 B B- B3 B- 6 CCC+ Caal CCC+ Caa2 CCC- Caa3 CCC- Ca CC CC D D Table 10: Recognised short-term ratings and equivalent credit rating grades Fitch Ratings Credit rating grade Standard & Poor's Corporation Moody's Investor Services 1 A-1 P-1 F-1 2 A-2 P-2 F-2 APS 112 Attachment F-36 January 2013 Fitch Ratings Credit rating grade Standard & Poor's Corporation Moody's Investor Services 3 A-3 P-3 F-3 4 Others Others Others Class 1 - Cash items Credit Rating Grade Risk Weight % Notes and coins. All Australian dollar balances and other Australian dollar claims on the RBA 0 Class II - Claims on Australian and foreign governments and central banks Credit Rating Grade Risk Weight % All Australian dollar claims on the Australian 0 Government. 1 0 Claims on overseas central governments and 2 20 state or regional governments, State or 3 50 Territory Governments in Australia 4 or 5 100 Claims on local governments and non- 1 20 commercial public sector entities in Australia 2 50 and overseas 3,4,5 100 Class III - Claims on ADls and overseas banks Risk Weight % Credit Rating Grade 1, 2, 3 20 4,5 50 Claims (other than equity) on ADls and overseas banks, being claims with an original maturity of three months or less Claims (other than equity) on ADls and overseas banks with an original maturity of more than three months 1 2,3 4,5 20 50 100 Class IV - Claims secured against eligible residential mortgages LVR% Standard eligible mortgages Risk weight Risk weight (no mortgage insurance) (with mortgage insurance) % % 0 - 80 35 35 80.01 - 90 50 35 90.01 - 100 75 50 >100.01 100 75 Class VII - Other assets and claims Risk Weight % 20 50 Claims (other than equity) on Australian and international corporate counterparties (including insurance and securities companies) and commercial public sector entities Alternatively, Credit Rating Grade 1 2 3,4 5,6 unrated 100 150 100 100 1 In order to obtain approval, an ADI will be required to satisfy APRA that the capital requirement resulting from a 100 per cent risk-weight for these claims is not materially less than the capital requirement which would apply if credit ratings were used or the cost of using credit ratings for these exposures outweighs the benefits