Consider a bank with the following balance sheet:

Assets	Liabilities
Required reserves $\backslash (9$million	Checkable deposits $\backslash )90$million
Excess reserves $\backslash (2$million	Bank capital $\backslash )6$million
T-bills $\backslash (46$million
Commercial loans$\backslash )39$million

The bank makes a loan commitment for $\$15$million to a commercial customer. Calculate the bank’s capital ratio before and after the agreement. Calculate the bank’s risk-weighted assets before and after the agreement. Problems $19$–$21$ relate to a sequence of transactions at Oldhat Financial.

The capital ratio is the level of a bank's funding to its risk-weighted assets. Weights are characterized by risk-responsiveness proportions whose estimation is directed under the applicable Accord. Basel II expects that the all-out capital ratio should be no lower than 8%.

Before Basle Accord, the banking area faces the disappointment of giant banks, which uncovered dangerous resources of the banks and their off-balance sheet activities. Banks were then keeping up with capital according to add up to resources they hold, which is called leverage ratio, the measure of capital isolated by all-out resources it possesses. Basle accord thought of the answer for combat and mitigate the risk, banks were presented to.

According to the Basle accord, banks needed to keep up with risk-based capital. All of the assets were partitioned into distinct classes and were

doled out risk weight percentage. The assets with more risk default were given more weightage and likewise, risk-based capital was commanded.

Taking a look at the balance sheet of the bank and according to Basle Accord, Reserve and excess reserves are relegated 0 % risk. Henceforth, reserve and excess reserve save comprise no gamble weight resource.

Municipal bonds and residential mortgage were given 50 % risk weight, that is, their asset size of $ 135 million ( $ 65 million & $70 million ) will be assigned 50 % risk weight. Hence risk-weight asset is $ 67.5 million (half of $ 135million ).

Commercial loans are assigned 100 % risk weightage, hence the risk weight asset will be $ 60 million.

Hence,Total Risk-weighted Assets =$ 67.5 million +$ 60 million

=$ 137.5 million