Fifth Bank Has the Following Balance Sheet with Values Stated

question 61

Multiple Choice

Fifth Bank has the following balance sheet with values stated in millions of dollars.All assets are associated with corporate customers (not governments or sovereigns) .Refer to Table 20-8 for associated risk weights. $\begin{array}{ll}\text { Cash } & \$ 80& \text { Deposits } &\$550\\\text { Municipal General Obligation } & \$ 100 \\\text { Bonds } & \\\text { Residential Mortgages 1-4 } & \$ 220& \text { Long-Term Debt }&\$290 \\\text { family (LTV 60\%-80\%) } & \\\text { Conmercial loans } & \$ 500&\text { Equity } & \$60 \\\text { Total Assets } & \$ 900&&\$ 900\end{array}$

In addition,Fifth Bank has off-balance sheet items as follows: (Refer to Tables 20-10 and 20-11)

$50 million in commercial letters of credit (LCs) ,
$300 million in 3-year interest rate swaps that are in-the-money by $2 million
$50 million in 4-year forward FX contracts that are out-of-the money by $2 million
Is Fifth Bank currently over or under capitalized for on-balance-sheet assets in order to be considered well capitalized according to Basel III?

• A)Overcapitalized for both Tier I and Total capital standards.
• B)Overcapitalized for Tier I standard;Undercapitalized for Total standard.
• C)Undercapitalized for Tier I standard;Overcapitalized for Total standard.
• D)Undercapitalized for both Tier I and Total capital standards.

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Definitions:

Financial Statements

Structured reports detailing the financial performance, position, and cash flows of an organization, typically including the balance sheet, income statement, and statement of cash flows.

Accounting Cycle

The series of steps followed by an entity to track and manage its financial transactions, from the initial transaction recording to the final financial statement preparation and closing entries.

Closing

The process of finalizing accounts at the end of an accounting period by summarizing revenues and expenses and indicating net profit or loss.

Balance Columns

Sections in ledger accounts used to record debits on the left and credits on the right, facilitating the determination of account balances.