UPO Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses. Assets Liabilities and equity Cash (0%) $30 Deposits $350 Interbank deposits with AA rated Subordinated debt 35 8 banks (20%) (5 years) Standard residential mortgages Non-cumulative preference 90 7 (50%) shares Business loans to BB rated Common equity 220 10 borrowers (100%) Total assets $375 Total liabilities and equity $375 In addition, UPO Bank has $40 million in performance-related standby letters of credit (SLCs) with credit conversion factor of 50%. i. What is the total minimum capital required under Basel III? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [2 marks] ii. Does UPO Bank have enough capital to meet the regulatory capital requirements? Calculate Tier 1 CAR, Common Equity Tier 1 CAR, and Total CAR and compare them with Basel III requirements. Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [3 marks] iii. What additional Common Equity Tier 1 capital does UPO need to meet the minimum capital adequacy requirement? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [1 mark] UPO Bank has the following balance sheet (in millions of dollars) with the risk weights in parentheses. Assets Liabilities and equity Cash (0%) $30 Deposits $350 Interbank deposits with AA rated Subordinated debt 35 8 banks (20%) (5 years) Standard residential mortgages Non-cumulative preference 90 7 (50%) shares Business loans to BB rated Common equity 220 10 borrowers (100%) Total assets $375 Total liabilities and equity $375 In addition, UPO Bank has $40 million in performance-related standby letters of credit (SLCs) with credit conversion factor of 50%. i. What is the total minimum capital required under Basel III? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [2 marks] ii. Does UPO Bank have enough capital to meet the regulatory capital requirements? Calculate Tier 1 CAR, Common Equity Tier 1 CAR, and Total CAR and compare them with Basel III requirements. Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [3 marks] iii. What additional Common Equity Tier 1 capital does UPO need to meet the minimum capital adequacy requirement? Consider capital conservation buffer and assume that APRA suggests no countercyclical capital buffer. [1 mark]
