The bank has loan-loss reserves of $10 million. The real estate and commercial loans shown on the balance sheet are net of the loan-loss reserves.
a. Calculate the equity capital ratio. How could the bank increase its equity capital ratio?
b. Risk-adjusted assets are estimated using the following weightings process: cash and government securities =.00; real estate loans =.50; commercial and other loans = 1.00.
Calculate the risk-adjusted assets amount for the bank.
c. Calculate the Tier 1 Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
d. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
e. What actions could the bank management team take to improve the bank”s Tier 1 and Total Capital ratios?
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