The question stem a little long but the question itself is not difficult, do not require every question can do, do their best to do how much.
A bank has the following balance sheet (in millions): 244 e Retail Deposits 1204 Wholesale Deposits 904 e Common Equity 1304 4 Subordinated Debt (>5 years) 620-4 300+ 504 Cash OECD Bank Deposits (BBB) Corporate Bonds (BBB) Mortgage Loans Small Business Loans Consumer Loans Reserve for Loan Losses Total -300 -4 ) 3202 ee (10) Totalk 974 :974 The bank has the following transactions with a BBB+ rated company:k . A two-year forward contract on a foreign currency, currently worth 3 million, to buy foreign currency worth 140 million. A six-month forward contract on the FTSE100. The principal is 20 million and the current value is 2.5 million, A two-year swap involving oil. The principal is 60 million and the current value of the swap is -7 million. . Note: Basel I credit conversion factors are 0% to cash and government bonds; 20% to claims on OECD banks; 50% to residential mortgages; 100% to corporate loans, corporate bonds, and consumer loans. 4 Basel I credit conversion factors are 0% to cash and government bonds; 20% to claims on OECD banks; 50% to residential mortgages; 100% to corporate loans, corporate bonds, and consumer loans. B+ to B- Below B- Unrated de Rating AAA to AA- Country 0% Banks 20% Corporates 20% A+ to A- BBB+ to BBB- 20% 50% 50% 50% 50% 100% BB+ to BB- 100% 100% 100% 100% 100% 150% 150% 150% 150% 100% 50% 100% Retail lending (secured) Retail lending (unsecured) 1- to 5-year foreign exchange contracts 1- to 5-year interest rate swaps 5- to 10-year interest rate swaps %35 %75 >%5 0.5% 1.5% Add-on factors Equity Remaining Maturity (x) 52 Interest Rate 0.02 0.54 1.54 Exchange Rate and Gold 1.04 5.04 7.54 6.04 8.04 10.04 Other Precious Metals 7.04 7.04 8.02 Other Commodities 10.04 12.04 15.04 Required: (a) Calculate the risk-adjusted on-balance-sheet assets of the bank as defined under Basel I and II. (b) b Estimate the capital required under Basel I (assume no netting for the off-balance sheet items) and discuss whether the bank has sufficient capital to meet the Basel requirements. (c) Calculate the capital required under Basel II if the Standardized Approach is used and show whether the bank has sufficient capital to meet the Basel requirements. If not, calculate the total capital the bank needs to meet the requirement. Calculate the leverage ratio. Briefly discuss the difference between the leverage ratio and the capital adequacy ratio. (d) ) A bank has the following balance sheet (in millions): 244 e Retail Deposits 1204 Wholesale Deposits 904 e Common Equity 1304 4 Subordinated Debt (>5 years) 620-4 300+ 504 Cash OECD Bank Deposits (BBB) Corporate Bonds (BBB) Mortgage Loans Small Business Loans Consumer Loans Reserve for Loan Losses Total -300 -4 ) 3202 ee (10) Totalk 974 :974 The bank has the following transactions with a BBB+ rated company:k . A two-year forward contract on a foreign currency, currently worth 3 million, to buy foreign currency worth 140 million. A six-month forward contract on the FTSE100. The principal is 20 million and the current value is 2.5 million, A two-year swap involving oil. The principal is 60 million and the current value of the swap is -7 million. . Note: Basel I credit conversion factors are 0% to cash and government bonds; 20% to claims on OECD banks; 50% to residential mortgages; 100% to corporate loans, corporate bonds, and consumer loans. 4 Basel I credit conversion factors are 0% to cash and government bonds; 20% to claims on OECD banks; 50% to residential mortgages; 100% to corporate loans, corporate bonds, and consumer loans. B+ to B- Below B- Unrated de Rating AAA to AA- Country 0% Banks 20% Corporates 20% A+ to A- BBB+ to BBB- 20% 50% 50% 50% 50% 100% BB+ to BB- 100% 100% 100% 100% 100% 150% 150% 150% 150% 100% 50% 100% Retail lending (secured) Retail lending (unsecured) 1- to 5-year foreign exchange contracts 1- to 5-year interest rate swaps 5- to 10-year interest rate swaps %35 %75 >%5 0.5% 1.5% Add-on factors Equity Remaining Maturity (x) 52 Interest Rate 0.02 0.54 1.54 Exchange Rate and Gold 1.04 5.04 7.54 6.04 8.04 10.04 Other Precious Metals 7.04 7.04 8.02 Other Commodities 10.04 12.04 15.04 Required: (a) Calculate the risk-adjusted on-balance-sheet assets of the bank as defined under Basel I and II. (b) b Estimate the capital required under Basel I (assume no netting for the off-balance sheet items) and discuss whether the bank has sufficient capital to meet the Basel requirements. (c) Calculate the capital required under Basel II if the Standardized Approach is used and show whether the bank has sufficient capital to meet the Basel requirements. If not, calculate the total capital the bank needs to meet the requirement. Calculate the leverage ratio. Briefly discuss the difference between the leverage ratio and the capital adequacy ratio. (d) )
