FRM Part II · FRM Exam Part II · Capital Structure in Banks
A bank reports CET1 capital of 54, Additional Tier 1 capital of 12, Tier 2 capital of 18, and risk-weighted assets of 600 (all in USD millions). Using these figures, what is the bank's Tier 1 capital ratio?
The Tier 1 capital ratio is 11.0%. Tier 1 capital is CET1 of 54 plus Additional Tier 1 of 12, giving 66, which is divided by risk-weighted assets of 600. Tier 2 capital is excluded because it belongs only in total capital.
- A9.0%
- B11.0%Correct
- C14.0%
- D10.0%
Explanation
Tier 1 capital equals CET1 plus AT1: 54 + 12 = 66. Dividing by RWA of 600 gives 11.0%. The 9.0% option uses CET1 only, and 14.0% adds Tier 2, which is total capital rather than Tier 1.
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