A bank's balance sheet information is shown below. On Balance Sheet Items Category Face Value Weight Value Cash $121,600 0% SO Short-term government securities (92 days) 1 414,400 0% SO Federal Reserve stock 1 9,800 0% SO Repos secured by federal agencies 2 159,000 20% $31,800 Claims on U.S. depository institutions 2 937,900 20% $187,580 Short-term (lyr.) 4 5,800 100% $5,800 The risk-adjusted asset base under Basel II is $7,294,630 $7,886,530 $9,857,529 None of the answers are correct 

Basel II is a second international banking regulatory accord that is based on three main pillars: minimal capital requirements, regulatory supervision, and market discipline. Minimal capital requirements play the most important role in Basel II and obligate banks to maintain minimum capital ratios of regulatory capital over risk-weighted assets.

Important part in Basel II is refining the definition of risk-weighted assets, which are used as a denominator in regulatory capital ratios, and are calculated by using the sum of assets that are multiplied by respective risk weights for each asset type. The riskier the asset, the higher its weight. The notion of risk-weighted assets is intended to punish banks for holding risky assets, which significantly increases risk-weighted assets and lowers regulatory capital ratios

CALCULATION OF RISK WEIGHTED ASSSETS UNDER BASEL II

HENCE OPION 1 IS CORRECT ie. $7294630