Bank Analysis School eBook

Internal Use Only

Risk-Weighted Assets Account for the Riskiness of the Asset Mix

Asset categories are multiplied by a risk-weighting factor (e.g., 0%, 50%, 100%)

Higher risk-weightings are assigned to riskier asset categories (Call Report Instructions)

The resulting sum of these categories is total risk-weighted assets

UBPR Page 11B

Internal Use Only

Tier 1 Capital = 60

LOW RISK ASSET BANK & TRUST

AVG. BOOK BALANCE

RISK FACTOR

WEIGHTED VALUE

Cash

100 500 100 100

0%

0

FHLB Bonds

20% 50%

100

1-4 Family RE Loans Commercial Loans

50

100%

100

AVG. TOTAL ASSETS = 800

R-W Assets = 250

TIER 1 CAPITAL

60

TIER 1 CAPITAL

60

AVG. TOTAL ASSETS

800

TOTAL RISK-WEIGHTED ASSETS

250

TIER 1 LEVERAGE RATIO

7.50%

TIER 1 CAPITAL RATIO

24.00%