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Following is the data of Elite Bank's Total assets: Risk Weights Bank Assets 0% 15000 Cash and Treasuries 20% 1000 REPOs 7000 20% Municipality Bonds 20000 50% Home Mortgages 590 50% CMOS 10000 100% Commercial Loans 2,035 100% Agriculture Loans 5000 100% Bank Premises Allowances for loan Loss -1000 0% Using above data what will be minimum leverage capital for Elite bank?
Following is the data of Elite Bank's Total assets: Risk Weights Bank Assets 0% 15000 Cash and Treasuries 20% 1000 REPOs 7000 20% Municipality Bonds 20000 50% Home Mortgages 590 50% CMOS 10000 100% Commercial Loans 2,035 100% Agriculture Loans 5000 100% Bank Premises Allowances for loan Loss -1000 0% Using above data what will be minimum leverage capital for Elite bank?
Expert Solution
Basel III established a 3% minimum requirement for the tier 1 leverage ratio.
Hence minimum leverage capital to be maintained is 3% of total risky weighted assets.
| BANK ASSETS | AMOUNT | RISK WEIGHTS | RISK WEIGHTED AMOUNT |
| CASH & TREASURIES | 15000 | 0% | 0 |
| REPOs | 1000 | 20% | 200 |
| MUNICIPALITY BONDS | 7000 | 20% | 1400 |
| HOME MORTGAGES | 20000 | 50% | 10000 |
| CMOs | 590 | 50% | 295 |
| COMMERCIAL LOANS | 10000 | 100% | 10000 |
| AGRICULTURAL LOANS | 2035 | 100% | 2035 |
| BANK PREMISES | 5000 | 100% | 5000 |
| ALLOWANCES FOR LOAN LOSS | -1000 | 0% | 0 |
| TOTAL | 28930 |
HENCE MINIMUM LEVERAGE CAPITAL TO BE MAINTAINED = 28930*3% = 867.9
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