Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts.
Cash 7 million
Government Securities: 9 million
Mortgage loans 25 million
Other loans 55 million
Fixed assets 8 million
Intangile assets 5 million
Loan-loss reserves 4 million
Owners’ equity 6 million
Trust-preferred securities 3 million
Cash assets and government securities are not considered risky.
Loans secured by real estate have a 50% weighting factor.
All other loans have a 100 % weighting factor in term of riskiness.
Calculate the equity capital ratio.
Calculate the Tier 1 Ratio using risk-adjusted assets.
Calculate the Total Capital (Tier 1 and Tier 2) Ratio using risk-based assets.