FRM Part II · FRM Exam Part II · Capital Structure in Banks
A bank reports CET1 capital of 60, Additional Tier 1 of 15, Tier 2 of 25 and risk-weighted assets of 800 (all in USD millions). Which of the following is the bank's total capital ratio?
The total capital ratio is 12.5%. Total capital is CET1 plus Additional Tier 1 plus Tier 2, which is 100 million, divided by risk-weighted assets of 800 million. The 7.5% and 9.4% figures are the CET1 and Tier 1 ratios.
- A7.5%
- B9.4%
- C12.5%Correct
- D15.0%
Explanation
Total capital = 60 + 15 + 25 = 100. Dividing by RWA of 800 gives 12.5%. The 7.5% figure is the CET1 ratio (60/800), and 9.4% is Tier 1 divided by RWA (75/800), both of which omit part of the capital base.
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