Fall 2015 Q21

Tony88passTony88pass
in OSFI.MCT

Would it be ok to say to use Total Asset/(Total Liab/1.5) to approximate the MCT ratios for the 2years?

Comments

  • grahamgraham

    Okay, let's see:

    • For 2013, you get 50,000 / (34,200/1.5) = 219%
    • For 2014, you get 56,000 / (40,000/1.5) = 210%

    And the correct conclusion is indeed that 2014 should have to lower MCT ratio (based on a qualitative analysis as in the examiner's report.)

    If you were only making a comparison from year-to-year, it might be okay as a very rough approximation, but the actual values calculated above probably would not be accurate. The true capital available is very likely lower than the total assets, and the true capital required is very likely higher than the total liabilities. That means the MCT calculated in the above manner is very likely too high.

    It's not a bad idea and you could use your formula in this type of question to give yourself a clue as to the answer but to receive full credit you would probably need to then explain it more fully as in the examiner's report.

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