Question
Question C2 (a) Onshore Bank has $20 million in assets, with risk-adjusted assets of $10 million. CET1 capital is $500,000, additional Tier I capital is
Question C2
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(a) Onshore Bank has $20 million in assets, with risk-adjusted assets of $10 million. CET1 capital is $500,000, additional Tier I capital is $50,000 and Tier II capital is $400,000. Calculate the new (1) amount of risk-adjusted assets, (2) CET1 risk-based ratio, (3) Tier I risk-based capital ratio and (4) total risk-based capital ratio after considering the following transactions separately.
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(i) The bank issues $2 million of Certificate of Deposits (CDs) and uses the proceeds to finance single family mortgage to individual homeowners. (4 marks)
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(ii) The bank issues $100,000 of common stock to redeem the preferred stock. (4 marks)
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(b) Explain the reason for restricted use of Internal Ratings-based Approach and predominance of Standard Approach for accessing credit risk in Basel III. (4 marks)
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(c) Classify the MOST suitable type of regulations that the following policies belong to.
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(i) Deposit Insurance Scheme
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(ii) Minimum capital requirement for obtaining bank license in Hong Kong
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(iii) Reserve requirement
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