FRM Part II · FRM Exam Part II · Capital Structure in Banks
Bank Alpha has total assets of USD 200 billion, risk-weighted assets of USD 80 billion, and equity capital of USD 12 billion. It funds the rest with debt and deposits. If the bank suffers a loss of USD 3 billion, what is its equity-to-risk-weighted-assets ratio afterward, assuming RWA are unchanged?
After the USD 3 billion loss, equity falls from USD 12 billion to USD 9 billion. Dividing by unchanged risk-weighted assets of USD 80 billion gives an equity-to-RWA ratio of 11.25%.
- A11.25%
- B15.00%
- C9.00%Correct
- D12.00%
Explanation
Equity after loss = 12 - 3 = USD 9 billion. Ratio = 9/80 = 11.25%? Check: 9/80 = 0.1125. So the correct value is 11.25%.
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