Question

1. GlobalBankCrédit Financial Holdings PLC has the following assets on its balance sheet:

Asset

Amount Cash and equivalents $5,000,000

Government securities $1,500,000,000

Interbank loans $100,000,000

Mortgage loans $2,000,000,000

Ordinary loans

BBB+ - BBB- $300,000,000

AAA – AA- $550,000,000

Standby letters of credit $81,000,000

a. Calculate GlobalBankCrédit Financial Holdings PLC’s total risk weighted assets.

b. Using Basel II standards, calculate GlobalBankCrédit Financial Holdings PLC’s total (Tier 1 and 2) minimum capital requirement.

c. GlobalBankCrédit Financial Holdings PLC estimates that 14% of its AAA to AA- rated loans are at risk for a downgrade to BBB+. Calculate the effect this would have on its minimum capital requirement.

d. GlobalBankCrédit Financial Holdings PLC must meet the Basel III maximum capital requirement by next year. Calculate the effect this would have on its minimum capital requirement given the current state of its assets.

e. Discuss what GlobalBankCrédit Financial Holdings PLC might do to comply with the Basel III standards.

f. Discuss what could happen if GlobalBankCrédit Financial Holdings PLC fails to meet these new requirements.