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FRM Part I · FRM Exam Part I · Banks

A bank's balance sheet shows USD 50 million of residential mortgages at a 35% risk weight, USD 80 million of unrated corporate loans at a 100% risk weight, and USD 40 million of government bonds at a 0% risk weight. Off-balance-sheet, there is a USD 20 million undrawn commitment with a credit conversion factor of 50% to an unrated corporate borrower (100% risk weight). If the bank must hold total capital of 10% of RWA, what is the minimum required capital?

The minimum capital is USD 10.75 million. Risk-weighted assets are 17.5 for mortgages, 80 for corporate loans, 0 for government bonds and 10 for the commitment after a 50% conversion factor, totaling 107.5. Ten percent of that is 10.75.

  1. AUSD 10.75 millionCorrect
  2. BUSD 10.45 million
  3. CUSD 10.00 million
  4. DUSD 12.75 million

Explanation

RWA = 50×0.35 = 17.5; 80×1.0 = 80; bonds 0; commitment 20×0.5×1.0 = 10. Total RWA = 107.5. Capital = 10% × 107.5 = USD 10.75 million. Omitting the commitment gives 9.75; applying no CCF gives 12.75 RWA-based capital.

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