Define Risk weighted assets and Treasury bill

Risk weighted assets: Risk-weighted asset is a bank's assets weighted according to credit risk. Some assets, such as debentures, are assigned a higher risk than others, such as cash or government securities/bonds. Since

different types of assets have different risk profiles, weighing assets based on the level of risk associated with them primarily adjusts for assets that are less risky by allowing banks to "discount" lower-risk assets.

This sort of asset calculation is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution, and is regulated by the Local Central Banks or other National financial regulators. The specifics of CAR calculation vary from country to country, but general approaches tend to be similar for countries that apply the Basel Accords. In the most basic application, government debt is allowed a 0% "risk weighting" - that is, they are subtracted from total assets for

purposes of calculating the CAR.

Treasury bill: Treasury Bills issued by the government as an important tool of raising public finance and up to 1994, were of three types, although all of them were 90-day bills. Among these three types, bulk was represented by ad-hoc treasury bills issued to meet the cash balance need of the government. A second type was the 3-months treasury bills on tap introduced in August 1972 and their purpose was to mop up the excess liquidity of banks. The third type was the 3-months treasury bills introduced for subscription exclusively by the non-bank financial institutions, non-financial enterprises and the public. Initially, a limit of Tk 250 million was set for the issue of such treasury bills. Later this limit was withdrawn and Bangladesh Bank was empowered to issue any amount of treasury bills for the non-bank public. Despite the withdrawal of the limit, the holdings of non-banking sectors remained small and commercial banks comprised the main market for the treasury bills. These bills continued to be reissued in every ninety days. In December 1994, however, treasury bills on tap and the treasury bills for nonbanks were abolished. The holdings of treasury bills by the deposit money banks generally did not

exceed the amount needed to meet the liquidity requirement. A substantial part of the treasury bills issued, therefore, needed to be held by Bangladesh Bank. Of the total treasury bill holdings, the amountof holdings by the deposit money banks was 57% at the end of 1973 and amidst fluctuation, they came down to 27% at the end of June 1982. Later, the share started to rise and stood at 68% at the end of 1992. Thereafter, it fell sharply and came down to a lowest minimum of 4% at the end of June 1995.

That the Bangladesh Bank bills were allowed as approved securities for the statutory liquidity requirement of the banks and these bills were of yields higher than the treasury bill rate, might have induced the banks to reduce their holdings of treasury bills. This trend continued up to February 1997. In March 1997, the auctioning of Bangladesh Bank bills was suspended and only the 90-day treasury bills were sold through auction. Up to 25 October 1995, the treasury bills of ninety days maturity were sold at pre-determined rate, usually fixed time to time by the government. Thereafter, these were sold through auction at market determined rate of interest. Subsequently, on 7 February 1996, the

government introduced 30-days and 180-days treasury bills and on 16 March 1997, 1-year treasury bills for auction. Up to August 1998, four categories of treasury bills viz, 30-day, 90-day, 180-day and 1-year bills were sold regularly through weekly auction basis. From 6 September 1998, these were replaced by newly introduced 28-days, 91-days, 182-days, 364-days, 2-years and 5-years treasury bills.