1. Cimarron State Bank reports the following items on its balance sheet: cash = $200 million; U.S. government securities = $150 million; residential real estate loans = $300 million; and corporate loans = $350 million. Its off-balance-sheet items include standby credit letters backing the issue of state and local government general obligation bonds = $20 million, and long-term credit commitments to corporations = $160 million.
a. What are Cimarron State’s total risk-weighted assets? If the bank reports Tier 1 capital of $30 million and Tier 2 capital of $20 million, does it have a capital deficiency?
b. Now, assume Cimarron State Bank reports that they have entered into a 5-year interest rate swap with a notional value of $50 million. What is the risk weighted asset amount for the swap?