PART A · QUESTION 1
A bank has US$10bn of loans: half to companies, half home mortgages. Suppose the capital rules weight company loans at 100% and these mortgages at 35%.
// EXAM HALL20 QUESTIONS · 30 MINUTES
Regulatory Reporting Practice Test
Risk weights and capital, one bank's ratio, a return with a query due tomorrow, and the calls where a rule does not settle it.
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A regulatory reporting practice test asks whether you can apply a rule to a loan, get the return right, and say so early when it is not. This paper has four parts: risk weights and capital; one bank's ratio and provisions; a capital return with a classification query, set on an exhibit, with conversion factors and large exposures; and calls on interpretation, window dressing and regulator contact. Every question is original, and none comes from any bank's test. Sit it against a thirty-minute clock, or take it as practice.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// HOW TO SIT IT
Answer below as practice, and each read opens as you go. Or sit it as a test: 30 minutes, with every read held back until you finish.
PART A
The sums
How a return turns loans into a ratio.
PART A · QUESTION 2
A bank holds US$900m of capital against US$10bn of risk-weighted assets, a ratio of 9%. A loan book goes bad and it writes off US$200m. Assume its risk-weighted assets are unchanged.
How much new capital takes it back to 9%?
PART A · QUESTION 3
A bank has US$1,000m of mortgages at a 35% risk weight, and US$800m of corporate loans at 100%.
What are its risk-weighted assets?
PART A · QUESTION 4
A return is built from the same ledger as the accounts. Accounts and return show different figures for loans.
What do you do?
PART B
The bank's numbers
One bank's ratio and provisions.
EXHIBIT J · THE BANK'S NUMBERS
One small bank's year. Figures in US$m.
| US$m | |
|---|---|
| Loans, net of provisions | 8,000 |
| Liquid assets | 2,000 |
| Total assets | 10,000 |
| Deposits | 7,000 |
| Wholesale funding, 600 due within three months | 2,200 |
| Equity | 800 |
| US$m | |
|---|---|
| Interest income | 560 |
| Interest expense | (300) |
| Net interest income | 260 |
| Fees | 40 |
| Total income | 300 |
| Costs | (165) |
| Impairment charge | (35) |
| Profit before tax | 100 |
| Tax | (28) |
| Profit after tax | 72 |
| Gross loans | Provision | |
|---|---|---|
| Stage 1 | 7,330 | 20 |
| Stage 2 | 600 | 30 |
| Stage 3 | 200 | 80 |
| Details | US$m |
|---|---|
| Regulatory deductions from equity | 80 |
| Risk-weighted assets | 5,400 |
| Gross loans on the general ledger | 8130.0 |
| Gross loans on the loan system | 8126.8 |
PART B · QUESTION 5
From Exhibit J: equity less regulatory deductions, over risk-weighted assets.
What is the capital ratio?
PART B · QUESTION 6
From Exhibit J's provision table.
What is the coverage on stage 3 loans?
PART B · QUESTION 7
In Exhibit J, stage 1 carries a provision of 0.27% and stage 2 carries 5.0%. US$100m of performing loans now shows a significant increase in credit risk.
What does that do to this year's profit before tax?
PART C
The return
One draft, seven questions. Work out the weighted figures yourself: the return has not done it for you.
EXHIBIT AB · THE RETURN
A bank's quarterly capital return, in draft. Money in US$m. Capital is 800, all of it Tier 1, and the minimum ratio is 10.5%.
| Amount | Weight | |
|---|---|---|
| Home loans, up to 80% LVR | 4,000 | 35% |
| Home loans, above 80% LVR | 500 | 75% |
| Corporate | 2,000 | 100% |
| Commercial property | 1,000 | 120% |
| Undrawn commitments | 1,000 | 40% |
| Government | 1,000 | 0% |
| Total | 9,500 |
Undrawn commitments convert at 40%, then carry a 100% weight. The largest group of connected borrowers owes US$130m, against a limit of 25% of capital. A query came up today: US$300m of the first line may belong in the second. The return is due tomorrow. The corporate line comes from a system feed, plus 14 manual adjustments in a spreadsheet each quarter.
PART C · QUESTION 8
From Exhibit AB.
What do the undrawn commitments add to risk-weighted assets?
PART C · QUESTION 9
From Exhibit AB.
What are risk-weighted assets, and the capital ratio?
PART C · QUESTION 10
Suppose Exhibit AB's query is right: US$300m of home loans went in at 35% and belong at 75%.
What does the correction do?
PART C · QUESTION 11
Exhibit AB's return is due tomorrow. The classification query came up today, and the correct treatment of those loans will take three days to confirm.
What do you do?
PART C · QUESTION 12
In Exhibit AB, the largest group owes US$130m, against capital of US$800m and a limit of 25%.
What is its share, and how much room is left?
PART C · QUESTION 13
In Exhibit AB, the corporate exposures come from a system feed, and then 14 manual adjustments are added in a spreadsheet each quarter.
What do you ask?
PART C · QUESTION 14
Exhibit AB's bank has plenty of capital at 14.9%. A group of three companies owned by one family has been reported as three separate borrowers.
Does the 14.9% change what you do about it?
PART D
The calls
When the rule's wording does not settle it, and the regulator is on the phone.
PART D · QUESTION 15
After a regulatory return has gone out, you find that a loan portfolio was given the wrong risk weight. The capital ratio was overstated by 0.2 points. It was not close to any minimum.
What do you do?
PART D · QUESTION 16
A loan to a property developer could arguably go in two exposure classes, with different risk weights. The rule's wording does not settle it. The lower weight would save capital.
How do you decide?
PART D · QUESTION 17
The treasurer suggests reclassifying some loans just before quarter end, then moving them back afterwards. It would lift the reported ratio by 0.3 points.
What do you do?
PART D · QUESTION 18
A supervisor rings you directly to ask why a line in last quarter's return moved so much. You think you know, but you have not checked.
What do you do?
PART D · QUESTION 19
New capital rules start in eighteen months. Your head of finance asks how soon anyone needs to think about them.
What do you say?
PART D · QUESTION 20
A lender says: 'Your risk weight is killing this deal. Surely the loan could go in the lower class?'
What do you say?
0 OF 20 ANSWERED · 0 WITH THE SENIOR READ · 0 STANDS UP · 0 OFF THE LINE
// THE REST OF THE ROUND
Every question here is original; none is any bank's real test. Written for: Regulatory reporting analyst.
- Regulatory reporting analyst: the interview questions, against a two-minute clock.
- Situational judgement, for any seat.
- The assessment centre: a whole case in forty-five minutes.
// SUBSCRIBE
The Lab.
One case file and one question, in your inbox every Tuesday morning, New Zealand time. The senior banker's read opens only after you answer.
FREE WITH IT · 10-PAGE PDF
Case 01 of the interview case pack — Northmark Engineering, in full.
No spam. Unsubscribe anytime. Educational content only.