Using the following information for Bright Star National Bank, calculate that bank’s ratios of Tier 1-capital-to-risk-weighted assets and total-capital-to-risk-weighted assets under the terms of the Basel I Agreement. Does the bank have sufficient capital?

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On-Balance-Sheet Items (Assets)		Off-Balance-Sheet Items
Cash	$ 4.5 million	Standby letters of credit backing repayment of commercial paper	$ 17.5 million
U.S Treasury securities	25.6	Long term unused loan commitments to corporate customers	30.5
Deposit balances due from other banks	4	Total off-balance-sheet items	$ 48 million
Loans secured by first lines on residential property (1- to-4- family dwellings)	50.8	Tier 1 capital	$7.5 million
Loans to corporations	105.3	Tier 2 capital	$5.8 million
Total assets	$190.2 million

Bright Star National Bank's required level of capital under the new international capital standards would be determined from:

Standby credit letter: $17.5 million * 1.00 = $17.5 million

Long-term credit commitments: $30.5 million * 0.50 = 15.25 million

0% Risk-Weighting Category:
Cash	$ 4.5 million
U.S. Treasury securities	25.6 million
	$ 30.1 * 0 = $0 million

20% Risk Weighting Category:
Balances due from other Banks	$ 4.0 million
Credit equivalent Amounts of
Standby credits	17.5 million
	$ 21.5 million * 0.20 = $4.3 million

50% Risk Weighting Category:
Residential real estate loans	$ 50.8 million x 0.50 = $25.4 million

100% Risk Weighting Category:
Loans to corporations	$105.3 million
Credit equivalents of
long-term commitments	$15.25 million
	$120.55 million * 1.0 = $120.55 million
Total Risk-Weighted Assets	$150.25 million

The bank's capital ratio is:

Tier 1 capital/Risk-Weighted Assets =$ 7.5 million/$ 150.25 million = 4.99%

Total capital/Risk-Weighted Assets = $ 13.3 million/$ 150.25 million = 8.85%

It is just above the minimum Tier 1 capital requirement of 4 percent and total capital (Tier One + Tier Two) requirement of 8 percent.

Question 15.P.4: Using the following information for Bright Star National Ban...

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