Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition

Current exposure method

Credit risk: replacement cost (‘marking to market’) + potential future credit exposure (add-on). The add-on is measured as follows:

Residual maturity	Interest rate	Forex + Gold	Equity
Less than one year	Nil	1%	6%
One year to five years	0.5%	5%	8%
Over five years	1.5%	7.5%	10%

Exercise: Stage Six

Q1: Find below the balance sheet of a bank. Compute the Tier 1 capital ratio, the Tier 2 ratio, and the overall BIS capital ratio. Assets   Liabilities and shareholders’ equity Reserves with central bank 60 Demand deposits 750 Mortgage loans 525 Term deposits 450 Corporate loans 450 Interbank deposits 370 Interbank loans 375 Subordinated debt 25 Government bonds ...