Question

To be classified as an adequately capitalized bank, the bank must have a leverage ratio of at least ____________%, Tier I capital to risk-adjusted asset ratio of at least ______________ % and a total risk-based capital ratio of at least __________%, and does not meet the definition of a well-capitalized bank. 4; 4; 8 5; 6; 10 3; 3; 8 4; 8; 4 4; 6; 10

Answer 1

The correct answer is "4; 4; 8"

Explanation:

In order to be classified as adequately capitalized, the banks must meet certain criteria. This criteria includes have a leverage ratio of at least 4%, which is a signal of rapid growth but it can be a signal of facing operation or financial difficulties. For this reason, Tier I capital to risk-adjusted asset ratio is used and it should be of at least 4% as well. This ratio is more accurate because it is calculated based on all the assets that the bank holds that are risk-weighted. Also, the bank should meet the criteria of having a total risk-based capital ratio of at least 8%, according to Basel III. This is similar to the previous ratio, but it measures the bank's capital against its risk-weighted assets.