Calculate the Tier 1 Capital, which is the sum of: Common Shareholder Equity Any noncumulative, perpetual preferred shares (more like stock, and not bonds; no accumulated interest/dividends), AND Any minority shareholdings in consolidated subsidiaries (bank has control over these) Divide that number, the Tier 1 Capital, by the bank’s total assets. Risk-based Capital Standards pg. 257 Used to take account of credit risk and off-balance items. Calculating the Risk-based Capital Ratio: pg. 259-265 Step 1 sort bank’s assets into Risk Weighted Categories [NOTE: these – are DIFFERENT percentages than the later credit equivalent amounts! Don’t fuck that up!]: 0% - cash, federal govt securities, foreign currency obligations of US govt and certain foreign balances kept at Fed Reserve or certain foreign central banks, and gold bullion 20% - U.S. state and local govt obligations, obligations conditionally guaranteed by the U.S. govt, claims against US banks, and mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac 50% - first mortgage loans on one-to-four family residences, revenue bonds issued by state and local govts. 100% - loans to private borrowers, commercial letters of credit, the bank’s own premises and equipment, real property acquired by foreclosure Step 2 take each class of the bank’s off-balance sheet items and – multiply the face amount by the appropriate credit conversion factor to produce the credit equivalent amount. 0% - unused portions of lines of credit expiring within one year; the unused portion of lines of credit made for more than one year if the bank regularly reviews such lines of credit and can cancel them at anytime; and the unused portion of retail credit card lines of credit that the bank has the unconditional right to cancel at any time. 20% - commercial letters of credit 50% - related contingencies;” includes “transaction performance-based standby letters of credit, such as those backing contractors and suppliers performance [unlike financial guarantee type letters of credit (which is more like guaranty) these letters guarantee performance of a nonfinancial obligation; also applies to unused portion of lines of credit,
Calculate the Tier 1 Capital, which is the sum of: Common Shareholder Equity Any noncumulative, perpetual preferred shares (more like stock, and not bonds; no accumulated interest/dividends), AND Any minority shareholdings in consolidated subsidiaries (bank has control over these) Divide that number, the Tier 1 Capital, by the bank’s total assets. Risk-based Capital Standards pg. 257 Used to take account of credit risk and off-balance items. Calculating the Risk-based Capital Ratio: pg. 259-265 Step 1 – sort bank’s assets into Risk Weighted Categories [NOTE: these are DIFFERENT percentages than the later credit equivalent amounts! Don’t fuck that up!]: 0% - cash, federal govt securities, foreign currency obligations of US govt and certain foreign balances kept at Fed Reserve or certain foreign central banks, and gold bullion 20% - U.S. state and local govt obligations, obligations conditionally guaranteed by the U.S. govt, claims against US banks, and mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac 50% - first mortgage loans on one-to-four family residences, revenue bonds issued by state and local govts. 100% - loans to private borrowers, commercial letters of credit, the bank’s own premises and equipment, real property acquired by foreclosure Step 2 – take each class of the bank’s off-balance sheet items and multiply the face amount by the appropriate credit conversion factor to produce the credit equivalent amount. 0% - unused portions of lines of credit expiring within one year; the unused portion of lines of credit made for more than one year if the bank regularly reviews such lines of credit and can cancel them at anytime; and the unused portion of retail credit card lines of credit that the bank has the unconditional right to cancel at any time. 20% - commercial letters of credit 50% - “transaction related contingencies;” includes performance-based standby letters of credit, such as those backing contractors and suppliers performance [unlike financial guarantee type letters of credit (which is more like guaranty) these letters guarantee performance of a nonfinancial obligation; also applies to unused portion of lines of credit,
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