According to the Blue Table above, which Zone does it belong to? Assets value Ri

Question

According to the Blue Table above, which Zone does it belong to?

Assets value Risk Weight Factors Cash 120 0% U.S Treasury Securities 240 0% Bank Reserves 60 0% U.S Gov't Agency Securities 20 20% Mortgage Loans 350 50% Consumer Loans 150 100 Construction Loans 10 100 Corp Debt Securities 50 100 TOTAL 1000 Liabilites & Equities Transaction Deposits 700 Saving Accounts 100 Negoitated CDs 50 Repos 70 Subordinated Debt 20 TOTAL Liabilities 940 Common Equity 30 Retained Earnings 15 Preferred Stocks 15 TOTAL Equity 60 TABLE 13-4 Spe cifications of Capital Cate gories for Prompt Corrective Action Common Equity Tier I Risk-Based Ratio Tier I Risk-Based Total Risk-Based Leverage Zone Ratio Ratio Ratio Capital Directive/Other 6.5% or above 1. Well capitalized and and and and Not subject to a capital directive to meet a specific level for any capital measure 8% or above 10% or above 5% or above 2. Adequately capitalized 4.5% or above and and and and 6% or above 8% or above 4% or above Does not meet the definition of well capitalized 3.Undercapitalized Under 4.5% Under 6% Under 8% Under 4% or or or 4. Significantly undercapitalized Under 3% or Under 6% or Under 8% or Under 4% 5. Critically undercapitalized Tangible equity/Total assets 2%

Explanation / Answer

To answer the question, firt we need to find the RWA, Asset Amount RW RWA Cash 120 0% 0 U.S Treasury Securities 240 0% 0 Bank Reserves 60 0% 0 U.S Gov't Agency Securities 20 20% 4 Mortgage Loans 350 50% 175 Consumer Loans 150 100% 150 Construction Loans 10 100% 10 Corp Debt Securities 50 100% 50 Total RWA 389 Now getting into the Ratios part CET1 =common equity +Retained earning =15+30 45 there fore CET1 ratio = CET/RWA =45/389 11.57% Since CET 1 ratio itself is well above the CRAR requoirements other capital ratios need not be looked at. While leverage ratio is tier 1/ total assets. Tier 1 including additional tier 1 will be well above 50 which is above the requirement since the assets are 1000. So we can safely say that the bank will belong to the well capitalized zone

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