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Question: assets liabilities and equity s170 3 cash 0 s20 deposits...

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Assets Liabilities and equity S170 3 Cash (0%) S20 Deposits Interbank deposits with AA rated banks (20%) 25 Subordinated debt (5 years) (Tier 2 capital) 66 Cumulative preference Standard residential mortgages non-insured with LVR of 85% (50%) shares (Tier 1) Business loans to BB rated borrowers (100%) 69 Common equity (Tier 2 Total assets $180 Total liabilities and S180 equity (a) Calculate the risk-adjusted on-balance-sheet assets of the bank as defined under (4 marks) the Basel Accord. (b) Calculate the actual capital ratios of Third Bank and identify if they are sufficient to meet all regulatory capital requirements (countercyclical buffer is 0%). If not, identify which type of capital does the bank need to raise in order to meet all requirements. (6 marks) Basel IlI ratios Capital ratios per cent Common All Tier 1 Tetal Minimum buter Minimum plu butter bufer 4.5% 60% 6,0% 2.5% 7.0% 0.5% 10.5% captal Source: B (c) Financial market conditions are constantly changing. Advise the bank how it should adjust its balance sheet for each of the following changes (sometimes 2 adjustments are necessary): (5 marks) Deposi in and outflows become less predictable The cash rate is decreasing The risk weight for residential loans is decreased to 40% . The Australian Economy is weakening and more businesses are defaulting
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