Basel III Capital Requirements Analysis

Given:

• Risk-Weighted Assets (RWA) = $40.0 billion
• Common Equity Tier 1 (CET1) = $2.8 billion
• Additional Tier 1 Capital = $0.2 billion
• Tier 2 Capital = $1.4 billion

Calculations:

• Tier 1 Capital = CET1 + Additional Tier 1 = $2.8B + $0.2B = $3.0 billion
• Total Capital = Tier 1 + Tier 2 = $3.0B + $1.4B = $4.4 billion

Basel III Minimum Requirements:

• Common Equity Tier 1 (CET1) ≥ 4.5% of RWA
• Tier 1 Capital ≥ 6.0% of RWA
• Total Capital ≥ 8.0% of RWA

Plus Capital Conservation Buffer:

• CET1 Buffer ≥ 2.5% of RWA
• Total Capital Buffer ≥ 2.5% of RWA

Effective Minimum Requirements:

• CET1 ≥ 7.0% (4.5% + 2.5%)
• Tier 1 ≥ 8.5% (6.0% + 2.5%)
• Total Capital ≥ 10.5% (8.0% + 2.5%)

Bank's Ratios:

• CET1 Ratio = $2.8B / $40.0B = 7.0% ✅ (Meets requirement)
• Tier 1 Ratio = $3.0B / $40.0B = 7.5% ❌ (Below 8.5% requirement)
• Total Capital Ratio = $4.4B / $40.0B = 11.0% ✅ (Meets requirement)

Conclusion: The bank fails to meet Basel III requirements because its Tier 1 Capital ratio of 7.5% is below the required 8.5% (minimum 6.0% + 2.5% capital conservation buffer). While the bank meets CET1 and Total Capital requirements, the Tier 1 deficiency causes non-compliance.