FRM Part I · FRM Exam Part I · Banks
A bank has risk-weighted assets of USD 400 million. Its Common Equity Tier 1 (CET1) capital is USD 36 million, Additional Tier 1 capital is USD 8 million, and Tier 2 capital is USD 16 million. What is the bank's total capital ratio?
The total capital ratio is 15.0%. Total capital equals CET1 plus Additional Tier 1 plus Tier 2, which is USD 60 million, and dividing by risk-weighted assets of USD 400 million gives 15%. Using only CET1 or Tier 1 would understate the ratio.
- A9.0%
- B11.0%
- C15.0%Correct
- D12.5%
Explanation
Total capital = 36 + 8 + 16 = USD 60 million. Dividing by RWA of USD 400 million gives 15.0%. The 9.0% option uses CET1 only, and 11.0% uses Tier 1 capital (CET1 + AT1 = 44) and ignores Tier 2.
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