Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Mr. Robert Lacoursiere of Banc of America.
Robert Lacoursiere - Banc of America Securities
Yes. Good morning.
Michael Perry
Hello, Robert.
Robert Lacoursiere - Banc of America Securities
Good morning. How are you doing, Mike? Listen, I just have a couple of questions. One relating to capital. I know you are forecasting your sensitivity analysis on what would happen with regulatory capital based on changes. Somewhat, if you could help me understand why it doesn’t impact it that much, given that and from the third quarter of '07, your surplus of regulatory capital above the well capitalized total risk was about $360 million, and it dropped about a $100 million this quarter, which if we do the adjustments for the capital raised and the dividends, that meant you consumed about $315 million of regulatory capital in the quarter?
And yet, if you have the substantially higher losses, you still are just barely underneath it, barely impacts it. So, it must be that you're forecasting a quick reduction of other assets in order to pick it up. So it's based on reducing your assets to make the capital?
Michael Perry
Yeah, I mean I think if you look at it, it's in the back of our -- I would encourage you to look at in the appendix, the detailed forecast by quarter which shows our balance sheet being reduced quarter-by-quarter and the capital ratios that we project. And so what we did, if you look at page 4, we're projecting a $4.6 billion net shrinkage in our balance sheet, some of which is occurring as soon as the first quarter but most of which is occurring each quarter, okay.
And I think what we're doing is, we're saying we'll 'raise' about $400 billion, through balance sheet shrinkage of core capital and $318 million of risk-based capital, which provides us a cushion if we're wrong in terms of our forecast. If we're not wrong in terms of our forecast then our capital ratios would build to 7.42 core and 12.15 risk-based by the end of the year.
Robert Lacoursiere - Banc of America Securities
All right. So in other words, you need also -- if you happen to be worse in terms of credit outlook than your base line case, it all depends on the ability to shed assets, right?
Michael Perry
It definitely depends on our ability to shed assets, no doubt about that, and we'll be carefully monitoring that throughout the year. And in the worst case scenario where the timing of that, Robert, isn't exactly right, we have to be prepared to raise capital and maybe raise capital at a dilutive level.
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