Question

2. You have been given the balance sheet (next page) for Roxbury Savings Bank and have been asked for your assessment of its capital adequacy. You have been told it has no off-balance sheet activities. What is its:
   1. Tier 1 capital?
      
      
      
   2. Tier 1 and 2 capital?
      
      
      
      
   3. Risk-weighted assets? (You can put your answer on the next page with the balance sheet.)
      
      
      
   4. Ratio of Tier 1 capital to its i) total assets and ii) total risk-weighted assets?
      
      
      
      
   5. Ratio of Tier 1 and Tier 2 capital combined to its total risk-weighted assets?
      
      
      
      
   6. Does the bank have the capital it needs to meet the required capital adequacy standards laid out at the end of this exam?

Roxbury Savings Bank
Assets:	Total	Risk Weighting	Risk-Weighted Assets
Cash and Federal Funds	$       4,500
Treasury Securities	$       2,800
Loans - First Mortgages	$       5,000
Other loans	$       2,613
Fixed Assets & Goodwill	$       3,000
Total Assets	$     17,913
Liabilities:
Deposits	$     11,000
Borrowed Funds	$       4,500
Other Liabilities	$          913
Subordinated Notes	$          500
Total Liabilities	$     16,913
Common Stock & Retained Earnings	$       1,000
Total Liabilities and Equity	$     17,913

Answer 1

Solution:

Part A )

Tier 1 capital is the common stock and retained earnings and it is $1000

Part B )

Tier 1 and 2 capital is common stock and retained earnings + subordinated notes in this bank

Hence Tier 1 and Tier 2 capital = $1000 + $500 = $1500

Part C, D, and E are calculated in Excel sheet

Part F data is not given