Simplifying assumptions:

Risk weights of all off-balance sheet items are equal to 100%. Regulator's CET1 ratio for adequate capitalization is 4.5%, Tier 1 ratio is 6.0%, and Total capital ratio is 8.0%. There are no restrictions on how much subordinated debt and reserves you can count as Tier II capital. Items that do not show up on the balance sheet ( e.g., Goodwill) have a value of zero.

Suppose Nittany Bank issued the minimum amount of equity that satisfies the capital requirements. Based on the information above, how should the bank utilize this newly issued capital?

Group of answer choices

The bank should invest the newly issued capital in mortgage loans.

The bank should invest the newly issued capital in the asset that generates the highest returns.

The bank should invest the newly issued capital in OECD interbank deposits.

The bank should keep the newly issued capital as cash.

The bank should invest the newly issued capital in consumer loans.

Nittany Lion Bank has the following balance sheet (in $m ), with the risk weights in parentheses. Nittany Lion Bank also has the following off-balance sheet item: A \$30 million in performance-related standby letter of credit (SLCs) to a public corporation with a conversion factor of 50%. Simplifying assumptions: - Risk weights of all off-balance sheet items are equal to 100%. - Regulator's CET1 ratio for adequate capitalization is 4.5%, Tier 1 ratio is 6.0%, and Total capital ratio is 8.0%. - There are no restrictions on how much subordinated debt and reserves you can count as Tier II capital. - Items that do not show up on the balance sheet ( e.g., Goodwill) have a value of zero