The bank is considering changing its asset mix by moving $100 million of commercial loans into Treasury securities. Assume total assets remain unchanged and the bank has zero off-balance-sheet business.
Under the Basel III standardized credit risk-weighting approach, if the bank does change the asset mix and capital remains the same, its risk-based capital ratio:

Question

The bank is considering changing its asset mix by moving $100 million of commercial loans into Treasury securities. Assume total assets remain unchanged and the bank has zero off-balance-sheet business.

Under the Basel III standardized credit risk-weighting approach, if the bank does change the asset mix and capital remains the same, its risk-based capital ratio:

Answer

will not change because the total assets have not changed.

Answer

will increase because the asset portfolio will have more credit risk.

Answer

will not change because the credit risk weight of Treasury securities is zero.

Answer

will increase because the asset portfolio will have less credit risk.

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