Below those basic balance sheet values, you will find a breakdown of the major components…

The attached spreadsheet has the assets and liabilities of a G-SIFI bank, Big Bank. Below those basic balance sheet values, you will find a breakdown of the major components of key balance sheet items by type, type of customer, and/or risk class. The breakdowns also include loan commitments, an off-balance sheet item that requires capital, and both the replacement cost of derivatives from the asset side and the notional amounts of derivatives (from both assets and liabilities). We also assume that loans are generally granted on conventional market terms.
Step 1: Compute the risk-weighted assets of the bank.
For simplicity, we streamline the capital requirements somewhat. We consider a credit risk rating system of 1 to 5, as well as an unrated bucket, and use the standardized weights in the table below.
Please use the following matrix to assign weights to the various asset exposures:
Rating Class/Type of exposure Sovereign Other Government Entity Banks Corporates Class 1 (roughly equivalent to AAA) 0% 20% 20% 20% Class 2 (roughly equivalent to AA+ to A-) 20% 50% 50% 50% Class 3 (roughly equivalent to BBB+ to BBB-) 50% 50% 50% 100% Class 4 (roughly equivalent to BB+ to B-) 100% 100% 100% 100% Class 5 (below B-) 150% 150% 150% 150% Unrated 100 100% 100% 100%
Other risk weights of relevance for determining risk weighted assets:
Type of Exposure Risk Weight Retail credit (credit cards, overdraft lines) meeting standard criteria 75% Unrated small business or small-medium enterprise lending 85% Residential real estate with loan to value ratio between 80% and 90% 45% Residential real estate with loan to value ratio of more than 90% 55% Long-term commitments to lend 50% Short-term commitments (not unconditionally cancelable) 10% Subordinated debt of corporates 150% Equity of corporates 250% Commercial Real Estate Risk Weight of the Borrower/Counterparty All else 100%
Assumptions/Computation Guide:
Deposits with Banks: Assume the banks where funds are deposited are all Risk Class 2.
Fed funds sold and securities purchased under resale agreements (repo): Assume Risk Class 2.
Securities borrowed: Assume counterparties are Risk Class 2.
Trading assets in the balance sheet is the sum of the positive replacement cost of derivatives broken out below the balance sheet and the breakdown below of other trading assets (such as securities trading inventories). The positive replacement cost is weighted by the counterparty Risk Class.
In addition, you must compute the potential future exposure of the derivatives, using the notional amounts in the derivatives breakdown table using the following matrix. Note that the notional amounts are reported in billions, instead of millions. The PFE is computed by multiplying the notional amount (the face value) of the derivatives by a supervisory factor, depending on the type of derivative, [1] and then multiplied by the counterparty risk class weight. For simplicity, we assume no netting of derivatives and give no credit for collateral.
Type of Derivative Credit Risk Class (for single name credit derivatives) or commodity type Supervisory Factor to Determine Potential Future Exposure Interest Rate 0.4% Foreign Exchange 4.0% Credit (single name) Class 1 0.4% Class 2 0.4% Class 3 0.5% Class 4 1.25% Class 5 6% Credit Index Investment Grade .4% Equity Index 20% Commodities Oil/gas 18% [1] This is very simplified version of both the calculation and the matrix in Basel Committee on Banking Supervision, The standardized approach to measuring counterparty credit risk exposures, March 2014, rev. April 2014, available at .


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