1. Global Bank Credit Financial Holdings PLC has the following assets on its balance sheet:
Asset
Amount Cash and equivalents $5,000,000
Government securities $1,500,000,000
Interbank loans $100,000,000
Mortgage loans $2,000,000,000
Ordinary loans
BBB+ - BBB- $300,000,000
AAA - AA- $550,000,000
Standby letters of credit $81,000,000
a. Calculate GlobalBankCredit Financial Holdings PLC's total risk weighted assets.
b. Using Basel II standards, calculate GlobalBankCredit Financial Holdings PLC's total (Tier 1 and 2) minimum capital requirement.
c. GlobalBankCredit Financial Holdings PLC estimates that 14% of its AAA to AA- rated loans are at risk for a downgrade to BBB+. Calculate the effect this would have on its minimum capital requirement.
d. GlobalBankCredit Financial Holdings PLC must meet the Basel III maximum capital requirement by next year. Calculate the effect this would have on its minimum capital requirement given the current state of its assets.
e. Discuss what GlobalBankCredit Financial Holdings PLC might do to comply with the Basel III standards.
f. Discuss what could happen if GlobalBankCredit Financial Holdings PLC fails to meet these new requirements.