Translate a loan into capital pressure
Calculate the simplified capital effect of a new exposure using risk-weighted assets and a target capital ratio.
A proposed $20M commercial loan has a simplified 100% risk weight. The bank wants to maintain a 10% capital ratio against risk-weighted assets. Simplified capital use = exposure x risk weight x target capital ratio. The common trap is treating spread income as free growth and ignoring the capital capacity the exposure consumes. Start with exposure $20M proposed loan exposure. The exposure is the balance-sheet commitment that starts the capital conversation. Apply risk weight $20M x 100% = $20M simplified RWA. Risk weighting translates the exposure into the denominator used for capital planning. Apply target capital ratio $20M RWA x…
Sign up free — one personalized lesson every day, matched to your role and goals.
Already have an account? Sign in