FRM Part I · FRM Exam Part I · Banks
A bank has risk-weighted assets (RWA) of $400 million and Common Equity Tier 1 (CET1) capital of $36 million. What is its CET1 ratio?
The CET1 ratio is CET1 capital divided by risk-weighted assets, which is 36 divided by 400, or 9.0%. Capital ratios use risk-weighted assets as the denominator, not total assets or other bases.
- A7.0%
- B9.0%Correct
- C11.1%
- D10.0%
Explanation
CET1 ratio = CET1 capital / RWA = 36 / 400 = 9.0%. The 11.1% figure results from inverting the ratio (400/36 expressed incorrectly) or dividing by a wrong base; 10% uses an unrelated figure.
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