FRM Part II · FRM Exam Part II · Capital Structure in Banks
A bank has CET1 of 54 billion, Additional Tier 1 of 12 billion, Tier 2 of 18 billion, and risk-weighted assets of 600 billion. Under Basel III, what is the bank's total capital ratio?
The total capital ratio is 14.0%. Total capital is CET1 plus Additional Tier 1 plus Tier 2, which is 84 billion, divided by 600 billion of risk-weighted assets. Using only CET1 or Tier 1 would understate the ratio.
- A9.0%
- B11.0%
- C14.0%Correct
- D12.0%
Explanation
Total capital = 54 + 12 + 18 = 84 billion. Dividing by RWA of 600 billion gives 14.0%. The 9.0% figure is CET1 only, and 11.0% is Tier 1 only (66/600), both omitting capital tiers.
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