Calculate the bank’s risk-weighted assets before and after the agreement
Reserves and T-bills have a zero weight. So, $60 million has zero weight.
Commercial loans carry a 100% weight. RW Assets = $50 million.
Total risk-weighted assets = $50 million.
After the loan commitment, risk-weighted assets: Reserves and T-bills have a zero weight. So $60 million
has zero weight.
Commercial loans carry a 100% weight. RW Assets = $50 million.
Commercial loan commitments are at 100%. RW Assets = $10 million.
Total risk-weighted assets = $60 million.
The actual risk-weighted assets for the loan commitment may vary depending on the terms of the commitment and other factors. However, under the idea of risk weighted assets, the $10 million would be correct.
How well capitalized is the bank before and after the agreement?
The bank is well capitalized, at 10/110 = 9.09%. Since the loan commitment is not an accounting transaction yet, the capital ratio is the same after.