Here again is the balance sheet information for Cipher Bank

Here again is the balance sheet information for Cipher Bank. It will be repeated in future questions to make things a bit easier. Note that you can, and may have to, calculate anything marked with a\"???,\" and anything not included or otherwise calculable $0. Assets Liabilities and Owner\'s Equity ..tooo Checking deposits $2100 Buildings and furniture $900 Cash $80 Commercial paper $500 Deposit in the Fed $320 Government agency bonds $800 Home mortgages $1200 Loan to Bank A $400 Loans to firms $1100 Loans to households $1300 Municipal bonds $1400 US government bonds $600 niture $900 Savings deposits $800 Time deposits $200 Borrowing from Bank B $500 Borrowing from the Fed $1600 Other liabilities $1000 Equity $?2? Total assets $8600 Total liabilities and owner\'s equity???

Solution

Soln : Equity value in the balance sheet = Total assets - Total Liabilities = 8600 - (2100+800+200+500+1600+1000) = $2400

Total liabilities and owner equity = total assets = $8600

Total Risk weighted assets are those, as per the BASEL , all assets are defined with some capital charge to calculate the risk weighted assets and finally the capital adequacy ratio.

Like for home mortgages 20% mortgages are non performing, hence the 20% of home loans will be call under 100% capital charge

Risk weighted assets will cover = cash *0 + commercial paper *20% + deposit in Fed *0 + (Government bond + US treasury bond)*0 + Home mortgages * 20% + loan to bank A *100 + loan to firms *20% + loan to households *100% + Municipal bonds *0

Risk weighted assets = 100 + 240 +480 + 400 + 220 + 1300 = $2740