The following information is given for a bank:

Balance-sheet items: (in $ millions)

cash and equivalents (0% risk category) $4,000

short-term loans (20% risk category) 50,000

one-four family mortgages (50% risk category) 10,000

commercial loans (100% risk category) 35,000

Off-balance-sheet items (in $ millions)

Commercial letters of credit (20% risk category) 10,000

(1) (8 points) What are the required risk-based capital, i.e., Tier 1 (core) and total capital, respectively? Assume the core capital has to be at least 6% of the risk-weighted assets, and the total capital has to be at least 8% of total risk-weighted assets.

(2) (6 points) If this bank has the following capital structure, does it satisfy the minimum capital requirements set by the regulators as in part (1)?

Item (in $ millions)

Notes and debentures $2000

Common Stock 600

Paid in Surplus 1000

Retained earnings 400

Loan-loss reserve 500