FRM Part I · FRM Exam Part I · Banks
A bank has Common Equity Tier 1 capital of USD 6 billion, Additional Tier 1 capital of USD 1.5 billion, Tier 2 capital of USD 2 billion, and risk-weighted assets of USD 100 billion. What is its Tier 1 capital ratio?
The Tier 1 ratio is 7.5%. Tier 1 capital is CET1 of USD 6 billion plus Additional Tier 1 of USD 1.5 billion, giving USD 7.5 billion, which is divided by risk-weighted assets of USD 100 billion. Tier 2 capital is excluded from Tier 1.
- A6.0%
- B7.5%Correct
- C9.5%
- D8.0%
Explanation
Tier 1 capital equals CET1 plus AT1 = 6 + 1.5 = USD 7.5 billion. Dividing by RWA of USD 100 billion gives 7.5%. The 6.0% option ignores AT1, and 9.5% wrongly adds Tier 2, which belongs to total capital.
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