商业银行管理(英文)chapter2 The Management of Capital

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商业银行管理Chap011 全文免费

Estimating Liquidity Needs (continued)
• Sourceing Liquidity Needs (continued)
• Sources and Uses of Funds Approach
▫ Asset Liquidity Management or Asset Conversion Strategy
▫ This strategy calls for storing liquidity in the form of liquid assets
bills, fed funds loans, CDs, etc.) and selling them when liquidity is needed
▫ Balanced Liquidity Strategy
▫ The combined use of liquid asset holdings (Asset Management) and
borrowed liquidity (Liability Management) to meet liquidity needs
Estimating Liquidity Needs (continued)
• Sources and Uses of Funds Approach
▫ Loans and deposits must be forecast for a given liquidity
planning period
▫ The estimated change in loans and deposits must be calculated
• Sources and Uses of Funds Approach • Structure of Funds Approach • Liquidity Indicator Approach • The Ultimate Standard for Assessing Liquidity

商业银行管理(英文)chapter2 The Management of Capital

Diversification
Deposit Insurance
Owners’ Capital
2.1 Brief introduction to Capital
Types of capital in use
1. Common stock 2. Preferred stock 3. Surplus 4. Undivided profits 5. Equity reserves 6. Subordinated debentures 7. Minority interest in consolidated subsidiaries 8. Equity commitment notes
Capital Allocation Capital Required Revenues Generated and Funds Use Overhead Consumed Capital Management
THANK YOU
DEPOSITORY INSTITUTION FAILURES AND CAPITAL
2.1 Brief introduction to Capital
Capital and risks
Key Risks in Banking and Financial Institutions’ Management
2.3 The Basel Agreement on International Capital Standards
Internal Risk Assessment Operational Risk Basel II and CredAgreement on International Capital Standards
2.3 The Basel Agreement on International Capital Standards

商业银行管理Chap012

Types of Deposits Offered by Depository Institutions
• Transaction (Payment or Demand) Deposits
▫ Making payment on behalf of customers ▫ One of the oldest services ▫ Provider is required to honor any withdrawals immediately ▫ Hottest item in the transaction deposit field today appears to
▫ Longer-Term ▫ Higher Interest Rates Than Transaction Deposits ▫ Generally Less Costly to Process and Manage
Types of Deposits Offered by Depository Institutions (continued)
▫ The dominant holder of bank deposits inside the United States is the private sector
• The Cost of Different Deposit Accounts
▫ Managers of depository institutions would prefer to sell only the cheapest deposits to the public but it is predominantly public preference that determines which types of deposits will be created

商业银行管理(英文) 全套课件[精]

Liquidity Risk Operational Risk Crime Risk
2.1 Brief introduction to Capital
Defenses against Risk
Quality Management
Diversification
Deposit Insurance
Owners’ Capital
2.2 Determining Capital Adequacy Understanding the components of bank capital
1.3 Bank Supervision Current unsolved regulatory issues
Capital Adequacy Too Big To Fall Deposit Insurance Reform Hedge Funds New Powers
Chapter 2
The Management of Capital
Chapter 1
Introduction of Commercial Bank
1.1 An Overview of Commercial Bank
What is bank
Types and Classes of Commercial Banks
Services that bank provides
1.2 Organizational Structure of Banks The organization and structure of the commercial banking industry
Advancing Size and Concentration of Assets Is a Countertrend Now under Way?

chapter1,2商业银行学中英文双语课件

3. 流动性风险
4. 操作风险
5. 欺诈风险
6. 信托风险
QUESTION
1. Financial system & Basic function of financial system
2. Financial intermediaries & Financial markets 3. Primary securities & secondary securities 4. Direct transfers & indirect transfers 5. Unit bank & branch bank 6. The reason that commercial banks are to be
Financial Maricit Units
Financial Intermediaries
Flow of funds
§2. Financial Intermediation 1. Financial institution 2. Financial Intermediaries 3. Direct Transfers 4. Indirect Transfers §2. 金融中介 1. 金融机构 2. 金融中介 3. 直接转换（融资） 4. 间接转换（融资）
1. Credit or default risks 2. Investment risks 3. Liquidity risks 4. Operating risks 5. Fraud risks 6. Fiduciary Risks
§6.银行风险的性质：风险溢价的决定因素
1. 信用风险或违约风险 2. 投资风险
3). avoid the failure of banks

商业银行管理(英文) 全套课件

2.1 Brief introduction to Capital
Capital and risks
Key Risks in Banking and Financial Institutions’ Management
Credit Risk Interest Rate Risk Exchange Risk
2.1 Brief introduction to Capital
Types of capital in use
1. Common stock 2. Preferred stock 3. Surplus 4. Undivided profits 5. Equity reserves 6. Subordinated debentures • Minority interest in consolidated subsidiaries • Equity commitment notes
1.3 Bank Supervision Current unsolved regulatory issues
Capital Adequacy Too Big To Fall Deposit Insurance Reform Hedge Funds New Powers
Chapter 2
The Management of Capital
2.1 Brief introduction to Capital
Definition of bank capital
EQUITY LONG-TERM DEBT RESERVES
2.1 Brief introduction to Capital Role of bank capital
DEPOSITORY INSTITUTION FAILURES AND CAPITAL

(整理)《管理的实践ThePracticeofManagement》摘抄.

《管理的实践The Practice of Management》摘抄作者：【美】彼得·德鲁克译者：齐若兰出版社：机械工业出版社版别：2009年9月第1版第1次印刷页数：288千字阅读时间：2013年4月9日~2013年5月1日,2013年12月10日~2014年1月1日概论管理的本质Introduction The Nature of Management第1章管理层的角色Chapter 1 The Role of Management1.在每个企业中，管理者都是赋予企业生命、注入活力的要素。

The manager is the dynamic, life-giving element in every business.2.在竞争激烈的经济体系中，企业能否成功，是否长存，完全要视管理者的素质与绩效而定，因为管理者的素质与绩效是企业唯一拥有的有效优势。

In a competitive economy, above all, the quality and performance of the managers determine the success of a business, indeed they determine its survival. For the quality and performance of its managers is the only effective advantage an enterprise in a competitive economy can have.管理层的重要性The Importance of Management1.只有超人一等的管理能力和持续改善的管理绩效，才能够促使我们不断进步，防止我们变得贪图安逸，自满而懒散。

Only superior management competence and continuously improved management performance can keep us progressing, can prevent our becoming smug, self-satisfied and lazy.第2章管理层的职责Chapter 2 The Jobs of Management1.企业的本质，即决定企业性质的最重要原则，是经济绩效。

商业银行管理(全英文)

-银行评估信息的能力超群。
-银行的委托授权监控功能。
Services Banks Offer the Public
Traditional items: - Carrying out currency exchanges - Discounting commercial notes and making business loans - Offering savings deposits - Safekeeping of valuables and Certification of value - Supporting Government activities with credit - Offering checking accounts (demand deposits) - Offering trust services
- The safekeeping/certification of value role保管和鉴定
The Functional Roles of Banks
The Role of Banks in Theory
Banks are financial intermediaries金融中介 selling financial services金融服务.
-准许消费者贷款 -财务顾问 -现金管理 -提供设备租赁 -使风险资本贷款 -出售保险服务
- Selling retirement plans
- Offering security brokerage佣金 and
security underwriting services - Offering mutual funds and annuities - Offering investment banking and merchant 批发商 services

商业银行管理 ROSE 7e 课后答案 chapter_02

CHAPTER 2THE IMPACT OF GOVERNMENT POLICY AND REGULATION ON BANKING AND THE FINANCIAL SERVICES INDUSTRYGoal of This Chapter: This chapter is devoted to a study of the complex regulatory environment that governments around the world have created for banks and other financial service firms in an effort to safeguard the public’s savings, bring stability to the financial system, and prevent abuse of financial service customers.Key Topics Presented in This Chapter∙The Principal Reasons for Bank and Nonbank Financial-Services Regulation∙Major Bank and Nonbank Regulators and Laws∙The Riegle-Neal and Gramm-Leach-Bliley (GLB) Acts∙Key Regulatory Issues Left Unresolved∙The Central Banking System∙Organization and Structure of the Federal Reserve System and Leading Central Banks of Europe and Asia∙Industry Impact of Central Bank Policy ToolsChapter OutlineI. Introduction: Nature and Importance of Bank RegulationII. Banking RegulationA. Pros and Cons of Strict Rules1. To protect the public's savings2. To control the money supply3. To ensure adequate supply of loans and to ensure fairness4. To maintain confidence in the system5. To avoid monopoly powers6. To provide support for government activities7. To support special sectors of the economyB. The Impact of Regulation -The Arguments for Strict Rules versus Lenient Rules III. Major Banking Laws-Where and When the Rules OriginatedA. Meet the “Parents”: The Legislation That Created Today’s Bank Regulatorsa. National Currency and Bank Acts (1863-64)b. The Federal Reserve Act (1913)c. The Banking Act of 1933 (Glass-Steagall)d. Establishing the FDIC under Glass-Steagalle. Criticisms of the FDIC and Responses Via New Legislationf. Raising the FDIC Insurance LimitB. Instilling Social Graces and Morales-Social Responsibility LawsC. Legislation Aimed at Allowing Interstate Banking: Where Can the “Kids” Play?D. The Gramm-Leach-Bliley Act (1999): What Are Acceptable Activities forPlaytime?E. Telling the Truth and Not Stretching It-The Sarbanes-Oxley Accounting StandardsAct (2002)IV. The 21st Century Issues in an Array of New Laws, Regulations and Regulatory StrategiesA. The FACT ActB. Check 21C. New Bankruptcy RulesD. Federal Deposit Insurance ReformE. New Regulatory Strategies in a New Century and Unresolved Regulatory Issues V. The Regulation of Nonbank Financial-Service FirmsA.Regulating Thrift (Savings) Industry1.Credit Unions2.Savings and Loans and Savings Banks3.Money Market Funds4.Life and Property/Casualty Insurance Companies5.Finance Companies6.Mutual Funds7.Security Brokers and Dealers8.Financial ConglomeratesB.Are Regulations Really Necessary in the Financial Services Sector?VI. The Central Banking System: It’s Impact on Banks and the Decisions and Policies of Financial InstitutionsA. Organizational Structure of the Federal Reserve SystemB. The Central Bank's Principal Task -- Making and Implementing Monetary Policy1.The Open Market Policy Tool of Central Banking2.Other Central Bank Policy Tools3. A Final Note on Central Banking’s Impact of Financial FirmsVII. Summary of the ChapterConcept Checks2-1. What key areas or functions of a bank or other financial firm are regulated today? Among the most important areas of banking subject to regulation are the adequacy of a bank's capital, the quality of its loans and security investments, its liquidity position, fund-raising options, services offered, and its ability to expand through branching and the formation of holding companies.2-2. What are the reasons for regulating each of the key areas or functions named above? These areas are regulated, first of all (and primarily), to protect the safety of the depositors' funds so that the public has some assurance that its savings and transactions balances are secure. Thus, bank failure is viewed as something to be minimized. There is also a concern for maintaining competition and for insuring that the public has reasonable and fair access to banking services, especially credit and deposit services.Not all of the areas listed above probably should be regulated. Minimizing the risk of bank failure serves to shelter some poorly managed banks. The public would probably be better served in the long run by allowing inefficient banks to fail rather than propping them up. Moreover, regulation may serve to distort the allocation of resources in banking, such as by restricting price competitionthrough legal interest-rate ceilings and anti-branching laws which leads to overbuilding of physical facilities. The result is a waste of scarce resources.2-3. What is the principal role of the Comptroller of Currency?The Comptroller of the Currency charters and supervises the activities of national banks through its policy-setting and examinations.2-4. What is the principal job performed by the FDIC?The Federal Deposit Insurance Corporation (FDIC) insures the deposits of bank customers, up to a total of $100,000 per account owner, in banks that qualify for a certificate of federal insurance coverage. The FDIC is a primary federal regulator (examiner) of state-chartered, non-member banks. It is also responsible for liquidating the assets of banks declared insolvent by their federal or state chartering agency.2-5. What key roles does the Federal Reserve System perform in the banking and financial system?The Federal Reserve System supervises and examines the activities of state-chartered banks that choose to become members of its system and qualify for Federal Reserve membership and regulates the acquisitions and activities of bank holding companies. However, the Fed's principal responsibility is monetary policy -- the control of money and credit growth in order to achieve broad economic goals.2-6What is the Glass-Steagall Act and Why Was It Important in banking history?The Glass-Steagall Act, passed by the U.S. Congress in 1933, was one of the most comprehensive pieces of banking legislation in American history. It created the Federal Deposit Insurance Corporation to insure smaller-size bank deposits, imposed interest-rate ceilings on bank deposits, broadened the branching powers of national banks to include statewide branching if state banks possessed similar powers, and separated commercial banking from investment banking, thereby removing commercial banks from underwriting the issue and sale of corporate stocks and bonds in the public market.There are many people who feel that banks should have some limitations on their investment banking activities. These analysts focus on two main areas. First, they suggest that this service may cause problems for customers using other bank services. For example, a bank may require a customer getting a loan to purchase securities of a company it is underwriting. This potential conflict of interest concerns some analysts. The second concern deals with whether the bank can gain effective control over an industrial organization. This could make the bank subject to additional risks or may give unaffiliated industrial organizations a competitive disadvantage. Today, banks can underwrite securities as part of the Gramm-Leach Bliley Act (Financial Services Modernization Act). However, congress built in several protections to make sure that the bank does not take advantage of customers. In addition, banks are prevented from affiliating with industrial firms under this law.2-7. Why did the federal insurance system run into serious problems in the 1980s and 1990s? Can the current federal insurance system be improved? In what ways?The FDIC, which insures U.S. bank deposits up to $100,000, was not designed to deal with system-wide failures or massive numbers of failing banks. Yet, the 1980s ushered in more bank closings than in any period since the Great Depression of the 1930s, bringing the FDIC to the brink of bankruptcy. Also, the FDIC's policy of charging the same insurance fees to all banks regardless of their risk exposure encouraged more banks to gamble and accept substantial failure risk. The recent FDIC Improvement Act legislation has targeted this last area, with movement toward a risk-based insurance schedule and greater insistence on maintaining adequate long-term bank capital.2-8. How did the Equal Credit Opportunity Act and the Community Reinvestment Act address discrimination?The Equal Credit Opportunity Act stated that individuals could not be denied a loan because of their age, sex, race, national origin or religious affiliation or because they were recipients of public welfare. The Community Reinvestment Act prohibited banks from discriminating against customers based on the neighborhood in which they lived.2-9. How does the FDIC deal with most failures?Most bank failures are handled by getting another bank to take over the deposits and clean assets of the failed institution -- a process known as purchase and assumption. Those that are small or in such bad shape that no suitable bids are received from other banks are closed and the insured depositors are paid off -- a deposit payoff approach. Larger failures may sometimes be dealt with by open-bank assistance where the FDIC loans money to the troubled bank and may order a change in management as well. Large failing money-center banks may also be taken over and operated as "bridge banks" by the FDIC until disposed of.2-10. What changes have occurred in the U.S. banks’ authority to c ross state lines?In 1994 the Riegle-Neal Interstate Banking and Efficiency Act was passed. This law is complicated but allows bank holding companies with adequate capital to acquire banks or bank holding companies anywhere in U.S. territory. No bank holding company can control more than 10% of the deposits at the national level and more than 30% of the deposits at the state level. Bank holding companies are also not allowed to cross state lines solely for the purpose of collecting deposits. Banks must adequately support their local communities by providing loans there. Bank holding companies are also allowed to offer a number of interstate services without necessarily having branches in the state by allowing affiliated banks to act as agents for the bank holding in other states. This law also allows foreign banks to branch in the U.S. under the same rules as domestic banks.2-11. How have bank failures influenced recent legislation?Recent bank failures have caused huge losses to federal insurance reserves and damaged public confidence in the banking system. Recent legislation has tried to address these issues by providing regulators with new tools to deal with the failures, such as the bridge bank device, and by granting banks, through regulation, somewhat broader service powers and more avenues for geographic expansion through branch offices and holding companies in order to help reduce their risk exposure. In addition, the increase in bank failures has focused attention on the insurance premiums banks pay and through the FDIC Improvement Act allowed the FDIC to move towards risk based insurance premiums.2-12. What changes in banking regulation did the Gramm-Leach-Bliley (Financial Services Modernization) Act bring about? Why?The most important aspect of the law is to allow U.S. bank, insurance companies and securities companies to affiliate with each other either through a holding company structure or through a bank subsidiary. The purpose of this law is to allow these companies to diversify their service offerings and reduce their overall risk. In addition it is thought that this seems to offer customers the convenience of one stop shopping.2-13. What new regulatory issues remain to be resolved now that interstate banking is possible and security and insurance services are allowed to co-mingle with banking?There are several key issues that remain to be resolved. One issue is concerned with what we should do about the governmental safety net. We need to balance risk taking by financial firms with safety for depositors. Another aspect of this issue is how to protect taxpayers if financial firms are allowed to take on more risk. Another issue that needs to be resolved is what to do about financial conglomerates. We need to be sure that the financial conglomerate does not use the resources of the bank to prop another aspect of their business. In addition, regulators need to be better trained to adequately regulate the more complex organizations and functional regulation needs to be reviewed periodically to make sure it is working. A third area that needs to be resolved is whether banking and commerce should be mixed. Should a bank sell cars along with credit cards and other financial services?2-14 Why must we be concerned about privacy in the sharing and use of financial-service customer’s information? Can the financial system operate efficiently if the sharing of nonpublic financial information is forbidden? How far, in your opinion, should we go in regulating who gets access to private information?It is important to be concerned about how private information is shared because it is possible to misuse the information. For example, if an individual’s medical condition is known to the bank through its insurance division, the bank may deny a loan based on this confidential information.They can also share this information with outside parties unless the customer states in writing that this information cannot be shared. On the other hand, there could be much duplication of effort if no sharing information is allowed. This would lead to inefficiencies and higher costs to consumers. In addition, sharing of information would allow targeting of services to particular customer needs. At this point, no one is quite sure what information and how it will be shared. It appears that there will eventually be a compromise between customers’ needs for privacy and the financial-services company’s need for to share that information.2-15. Why were the Sarbanes-Oxley, Bank Secrecy and USA Patriot Acts enacted in the United States? What impact are these new laws and their supporting regulations likely to have on the financial-services sector?The Bank Secrecy Act requires any cash transaction of $10,000 or more be reported to the government and was passed to prevent money laundering by criminal organizations.The USA Patriot Act was enacted after the attacks of September 11 and is designed to find and prosecute terrorists. It was a series of amendments to the Bank Secrecy Act. It requires banks and financial service providers to establish the identity of any customer opening or changing accounts in the United States. Many banks are however concerned about the cost of compliance.The Sarbanes-Oxley Accounting Standards Act came as a response to the disclosure of manipulation of corporate financial reports and questionable dealings among leading commercial firms, banks and accounting firms. It prohibits false or misleading information about the financial performance of banks and other financial service providers and generally tries to enforce higher standards in the accounting profession.2-16 Explain how the FACT, Check 21, 2005 Bankruptcy and 2006 FDIC Insurance Reform acts are likely to affect the revenues and costs of financial firms and their service to customers. FACT requires the FTC to make it easier for individuals victimized by identity theft to file a theft report and requires credit bureaus to help victims resolve the problems. This should make it easier for customers to handle identity theft problems and may reduce costs to the financial institutions that serve these customers. Financial institutions should be able to spend less on reimbursing customers for theft problems and perhaps the instances of identity theft will also be reduced at the same time.Check 21 allows financial institutions to send substitute checks to other banks to clear checks rather than the checks themselves. The substitute checks can be electronic images that can be transferred in an instant at a much lower cost to other institutions. This should reduce costs to institutions as they do not have to have an employee physically transfer checks anymore. In addition, financial institutions should know more quickly whether a check is good and this should reduce fraud and other costs associated with bad checks.2005 Bankruptcy Law requires that all higher income borrowers to pay back at least a portion of the money they have borrowed to the bank. Higher income borrowers will be required to make payment plans rather than have all of their debts forgiven. This should lower bad debt costs to financial institutions and may lower borrowing costs for all borrowers.Federal Deposit Insurance Reform raises the deposit insurance limits for certain retirement accounts and allows regulators to periodically adjust deposit insurance limits for inflation. This should allow investors to put more money into insured deposit accounts and may allow banks to have a more stable and reliable source of funds for loans and other investments. This will probably have the effect of increasing bank revenues and/or reducing expenses for the bank.For all of these new laws, the effect should be to make the bank more profitable because of higher revenues or lower expenses. At the same time these new laws allow financial institutions to better serve their customers.2-17.In what ways is the regulation of nonbank financial institutions different from the regulation of banks in the United States? How are they similar?Most nonbank financial institutions are considered “vested with the public interest” and therefore, face as close supervision from federal and state supervisors as banks do. However, some institutions are solely regulated at the federal level while others are only regulated at the state level.2-18. Which financial service firms are regulated primarily at the federal level and which at theSome regulators and experts are concerned because they feel that state regulators might not have the expertise to deal with the new more complex financial firm that exists today. They are also concerned because the new ‘functional’ regulation is not neces sarily coordinated between different regulatory agencies. Only time will tell if this functional regulatory structure is effective. 2-19. Can you make a case for having only one regulatory agency for financial service firms? Yes a case can easily be made for financial service firms. Problems in one area such as security brokerage services or insurance may eventually lead to problems in the traditional banking area or visa versa. One regulatory agency might be more likely to find these overlapping problems and prevent them before they cause the collapse of the entire organization. In addition, one regulatory agency may be able to better identify and prevent the inherent conflicts of interest that exist when a large financial conglomerate is formed.2-20. What is monetary policy?Monetary policy consists of regulation and control over the growth of money and credit in an attempt to pursue broad economic goals such as full employment, avoidance of inflation, and sustainable economic growth. Its principal tools are open market operations, changes in the discount (lending) rate, and changes in reserve requirements behind deposits.2-21. What services does the Federal Reserve System provide to depository institutions? Many services needed by banks are provided by the Federal Reserve Banks. Among the most important services provided by the Fed are checking clearing, the wiring of funds, shipments of currency and coin, loans from the Reserve banks to qualified depository institutions, and the supplying of information concerning economic and financial trends and issues. The Fed began charging for its services in order to help recover the added costs of deregulation which made more institutions eligible for Federal Reserve services and also to encourage the private marketplace to develop and offer similar services (such as check clearing and wire transfers).2-22. How does the Federal Reserve affect the banking and financial system through open market operations (OMO)? Why is OMO the preferred tool for many central banks around the globe?Open market operations consist of the buying and selling of securities by the central bank in an effort to influence and shape the course of interest rates and the growth of money and credit. Open-market operations, therefore, affect bank deposits -- their volume and growth -- as well as the volume of lending and the interest rates attached to bank borrowings and loans as well as the value of bank stock. OMO is the preferred tool, because it is also the Central Bank’s most flexible tool. It can be used every day and any mistakes can be quickly reversed.2-23 What is a primary dealer and why are they important?A primary dealer is a dealer in U.S. Treasury Bills and other securities that meets the Federal Reserve System requirements for trading directly with the Fed’s trading desk inside the New York Federal Reserve. It is through these trades with primary dealers that the Federal Reserve carries out its monetary policy objectives and influences the economy including the supply of money and credit and interest rates. Primary dealers have an integral role to play in the economy of the U.S. 2-24. How can changes in the central bank loan discount rate and reserve requirements affect the operations of depository institutions? What happens to the legal reserves of the banking system when the Fed grants loans through the discount window? How about when these loans are repaid? What are the effects of an increase in reserve requirements?The Discount Window is the department in each Federal Reserve Bank that receives requests to borrow reserves from banks and other depository institutions which are eligible to obtain credit from the Fed for short periods of time. The rate charged on such loans is called the discount rate. Reserve requirements are the amount of vault cash and deposits at the Federal Reserve banks that depository institutions raising funds from sources of reservable liabilities (such as checking accounts, business CDs, and borrowings of Eurodollars from abroad) must hold. If the Fed loans $200 million in reserves from the discount window, total reserves will rise by the amount of the discount window loan, but then will fall when the loan is repaid. Increasing reserve requirement means that depository institutions must keep more vault cash and reserves with the Federal Reserve for each deposit account they hold. This would have the effect of making less money available for loans. Since this has a multiplicative effect on the economy it can have a severe effect on the total amount of loans made and on the growth of the money supply that results.2-25. How did the Federal Reserve change the policy and practice of the discount window recently? Why was this change made?The Fed created two new loan types, primary and secondary credit, which replaced the existing adjustment and extended credit. Primary credit is extended to sound borrowing institutions at a rate slightly higher than the federal funds rate. Secondary credit is extended to institutions that do not qualify for primary credit for temporary funding needs at a rate slightly above the prime rate. These changes were implemented to encourage greater use of the discount window and to bring greater stability the federal funds rate and to the money market as a whole.2-26. How does the structure of the European Central Bank (ECB) appear to be similar to the structure of the Federal Reserve System? How are these two powerful and influential central banks different from one another?Like the Fed the ECB consists of a governing board and a policy making council and just like the Fed’s board of governors works with the 12 regional Federal Reserve banks the ECB has a cooperative arrangement with each EU member nation’s central bank. The policy menu of the ECB however is a lot simpler than its counterpart at the Fed. The central goal is price stability, which is largely achieved through open market operations and reserve requirements.Problems2-1. For each of the actions described explain which government agency or agencies a financialmanager must deal with and what banking laws are involved:A. Chartering a new bank.B. Establishing new bank branch offices.C. Forming a bank or financial holding company.D. Completing a bank merger.E. Making holding company acquisitions of nonbank businesses.A. For chartering a new bank in the United States either the state banking commission of thestate where the bank is to be headquartered must be consulted or the Comptroller of theCurrency must be sent an application for a national charter. The National Banking Actgoverns national charters while state charters are governed by rules laid down in statebanking statutes.B. Requests for new branch offices must also be made of the bank's chartering agency -- eitherthe state banking commission for state-chartered banks or the Comptroller of the Currencyfor national banks in the United States.C. Requests for holding company formation must be submitted to the Federal Reserve Boardor, for certain routine transactions, to the Federal Reserve Bank in the district. Some statesrequire their banking commissions to be notified if a holding company acquires a bankwithin the state's borders.D. The Bank Merger Act requires the approval of a bank's principal federal supervisoryagency for a proposed merger even if the bank is state chartered. Mergers involvingnational banks must be approved by the Comptroller of the Currency and by the statebanking commission if a bank has a state charter of incorporation. The merger must also bereviewed by other federal agencies that have supervisory responsibility for a bank, such asthe FDIC or the Federal Reserve, and by the U.S. Department of Justice.E. Request for acquisitions of nonbank businesses must be approved by the Federal ReserveBoard. For some more routine transactions, the Federal Reserve Bank in the distract canmake the decision.2-2. See if you can develop a good case for and against the regulation of financial institutions inthe following areas:A. Restrictions on the number of new financial-service institutions allowed to enterthe industry each year.B. Restrictions on which depository institutions are eligible forgovernment-sponsored deposit insurance.C. Restrictions on the ability of financial firms to underwrite debt and equitysecurities issued by their business customers.D. Restrictions on the geographic expansion of banks and other financial firms such aslimits on branching and holding company acquisitions across county, state, andinternational borders.E. Regulations on the bank failure process, defining when banks and other financialfirms are to be allowed to fail and how their assets are to be liquidated.A. Restricting entry into the banking industry limits competition and, to some extent, protectssome banks from failure, reducing the risk of depositor loss. On the other hand, limiting new firms props up some financial-service firms that should be allowed to fail if the system is to be as efficient as it can be.B. Restrictions on which banks can get deposit insurance also limits competition butencourages some banks to take on more risk because most depositors are protected by the insurance. Restricting which institutions are eligible for deposit insurance may limit the losses to the federal agency providing that insurance but may also limit that federalagency’s ability to monitor and control the money supply and the economy as a result. C. Limits on underwriting securities reduce a bank's revenue potential and will probablyresult in losing some of the largest corporate customers to foreign banks who face morelenient regulations. On the hand, underwriting securities is inherently risky and limiting this may limit the risk of the bank. It may also prevent the conflicts of interest that arise when a bank makes loans and underwrites securities at the same time.D. Limiting a bank's ability to expand geographically exposes it to greater risk of economicfluctuations within its local market area and makes it more prone to failure. On the other hand, allowing a bank to expand geographically may concentrate power in the hands of a few large institutions that make it more likely that service costs will rise for all customers.E. Protecting banks from failure inevitably involves sheltering some inefficient and poorlymanaged institutions that waste resources and fail to serve customers effectively. It alsotends to make the average customer less vigilant about the quality and risk of a particular bank's services and operations because deposits are insured and bank failure seems to most customers to be a relatively remote possibility. On the other hand, it makes customersmore confident in the system as a whole and makes a bank run less likely.2-3. Consider the issue of whether or not the government should provide a system of deposit insurance. Should it be wholly or partly subsidized by the taxpayers? What portion of the cost should be borne by depository institutions? by the depositors? Should riskier depository institutions pay higher deposit insurance premiums? Explain how you would determine exactly how big an insurance premium each bank should pay each year.。

Bank Management_Chapter 2

• Balance Sheet—Report of Condition
Shows the amount and composition of funds sources (financial inputs) and how much has been allocated to loans, securities, and other funds uses (financial outputs) at any given point in time.
Because these financial claims of the public are often volatile and because they are so large relative to the owners’ capital investment in banking firm, the average depository institution has considerable exposure to failure risk. It must continually stand ready to meet deposit withdrawals.
An Overview of Balance Sheet and Income Statement
• Income Statements—Financial Inputs and Outputs
Show how much it has cost to acquire funds and to generate revenues from the uses the financial firm has made of those funds.
Trading Account Assets: Provide short-term profits from short-term price movements. If the banking firm serves as a securities dealer, securities acquired for resale are included here.

商业银行管理第2章习题答案

Chapter 2Analyzing Bank PerformanceChapter Objectives1.Introduce bank financial statements, including the basic balance sheet and income statement, and discuss theinterrelationship between them.2.Provide a framework for analyzing bank performance over time and relative to peer banks. Introduce key financial ratios that can be used to evaluate profitability and the different types of risks faced by banks. Focus on the trade-off between bank profitability and risk.3.Identify performance measures that differentiate between small, independent banks (specialty banks) and largerbanks that are part of multibank holding companies or financial holding companies.4. Distinguish between types of bank risk; credit, liquidity, interest rate, capital, operational, and reputational.5. Describe the nature of and meaning of regulatory CAMELS ratings for banks.6.Provide applications of data analysis to sample banks’ financial information.7.Describe performance characteristics of different-sized banks.8. Describe how banks can manipulate financial information to ‘window-dress’ performance.Key Concepts1. Bank managers must balance banking risks and returns because there is a fundamental trade-off between profitability, liquidity, asset quality, market risk and solvency. Decisions that increase banking risk must offer above average profits. The more liquid a bank is and the more equity capital used to fund operations, the less profitable is a bank, ceteris paribus.2. Banks face five basic types of risk in day-to-day operations: credit risk, liquidity risk, market risk, capital/solvency risk, and operational risk. Market risk encompasses interest rate risk, foreign exchange risk and price risk. Each type of risk refers to the potential variation in a ba nk's net income or market value of stockholders’ equity resulting from problems that affect that part of the bank's activities.3. Banks also face risks in the areas of country risk associated with loans or other activity with foreign government units and off-balance sheet activities, which create contingent liabilities. More recently, banks have focused on reputation risk. For example, from 2002-2005 Citigroup, JP Morgan Chase, and Bank of America found that even though they continued to report strong pro fits, they experienced strong criticism for 1) their roles in facilitating strategies to disguise Enron’s true financial status, 2) problems in sub-prime lending programs via the Associates Corp. and their own internal finance company activities, 3) problems with underwriting subsidiaries with analyst conflicts between stock reports and the firm’s investment banking relationships; facilitating market timing of stock trades to their detriment of their own mutual fund holders, 4) lack of supervision of trading groups, and 5) facilitating improper borrowing at Parmalat.4. A bank's return on equity (ROE) can be decomposed in terms of the duPont system of financial ratio analysis. This examination of historical balance sheet and income statement data enables an analyst to evaluate the comparative strengths and weaknesses of performance over time and versus peer banks. The Uniform Bank Performance Report (UBPR) data reflect the basic ratios from this return on equity model.5. Different-sized commercial banks exhibit different operating characteristics and thus performance measures. Small banks typically report a higher return on assets (ROA) than large banks because they earn higher gross yields on assets and pay less interest on liabilities.6. High performance banks generally benefit from lower interest and non-interest expense and limit credit risk so that loan losses are relatively low. They also operate with above average stockholders' equity.7. Many banks can successfully "window-dress" performance by manipulating the reporting of financial data. They may accelerate revenue recognition and defer expenses or selectively alter when they take securities gains or losses and time when to charge off loans or report loans as non-performing. As such, they may inappropriately smooth earnings with provisions for loan losses or by other means. Analysts must be careful when evaluating extraordinary transactions that have one-time gain or loss features.Answers to End of Chapter Questions1. For a large bank, assets consist approximately of marketable securities (20%), loans (70%), and other assets (10%). Liabilities consist of core deposits (40%-60%), noncore, purchased liabilities (20%-40%), and other liabilities (5 %-10%) as a fraction of assets. Small banks typically obtain more funds in the form of core deposits and less in the form of noncore, purchased liabilities. Small banks often invest more in securities as well. Of course, the actual percentages for any bank depend on that bank’s business strategy, mark et competition, and ownership.2. A bank's interest income consists of interest earned on loans and securities while noninterest income includes revenues from deposit service charges, trust department fees, fees from nonbank subsidiaries, etc. Interest expense consists of interest paid on interest-bearing core deposits and noncore liabilities while noninterest expense is comprised of overhead costs, personnel costs, and other costs. A bank’s net interest income equals its interest income minus interest expense. Note that interest income may be calculated on a tax-equivalent basis in which tax-exempt interest is converted to its pre-tax equivalent. A bank’s burden is defined as its noninterest expense minus noninterest income. This is often quoted as a fract ion of total assets. A bank’s efficiency ratio is calculated as noninterest expense divided by the sum of net interest income and noninterest income. The denominator effectively measures net operating revenue after subtracting interest expense. The efficiency ratio measure the noninterest cost per $1of operating revenue generated. Analysts often interpret the efficiency ratio as a measure of a bank’s ability to control overhead relative to its ability to generate noninterest income (and overall revenue). A lower number is presumably better because it reflects better cost control compared with revenue generation.3. Balance sheet accounts:a. Increase liability: money market deposit account (+$5,000)Increase asset: federal funds sold (+$5,000)b. Decrease asset: real estate loanIncrease asset: mortgage loanc. Increase equity: common stock (common and preferred capital)Increase asset: commercial loans4. Income statementInterest on U.S. Treasury & agency securities $44,500Interest on municipal bonds 60,000Interest and fees on loans 189,700Interest income = $294,200Interest paid on interest-checking accounts $33,500Interest paid on time deposits 100,000Interest paid on jumbo CDs 101,000Interest expense = $234,500Net interest income = $59,700Provisions for loan losses = $ 18,000Net interest income after provisions = $41,700Fees received on mortgage originations $23,000Service charge receipts 41,000Trust department income 15,000Non-interest income = $79,000Employee salaries and benefits $145,000Occupancy expense 22,000Non-interest expense = $167,000Income before income taxes -$46,300Income taxes 15,742Net income = -$30,558Cash dividends declared 2,500Retained earnings = -$33,058This assumes that expenses associated with the purchase of the new computer are included in occupancy expense. If not, the computer expense (depreciation) will increase the loss for the period. Also, the bank can receive a tax refund from prior tax payments if the bank made a taxable profit within recent years.5. The primary risks faced by banks are credit risk, liquidity risk, interest rate risk, foreign exchange risk (the latter two represent market risk), operational risk, reputational risk, and capital solvency. In general, promised, or expected, returns should be higher for banks that assume increased risk. There should also be greater volatility in returns over time.a. Credit risk: Net loan charge-offs/LoansHigh risk - high ratio; Low risk - low ratioHigh risk manifests itself in occasional high charge-offs, which requires above average provisions for loan lossses to replenish the loan loss reserve. Thus, net income is volatile over time.b. Liquidity risk: Core deposits/AssetsHigh risk - low ratio; Low risk - high ratioHigh risk manifests itself in less stable funding as a bank relies more on noncore, purchased liabilities thatfluctuate over time. These noncore liabilities are also higher cost, which raises interest expense.c. Interest rate risk: (|Repriceable assets-repriceable liabilities|)/AssetsHigh risk - high ratio; Low risk - low ratioHigh risk banks do not closely match the amount of repriceable assets and repriceable liabilities. Largedifferences suggest that net interest income may vary sharply over time as the level of interest rates changes.d. Foreign exchange risk: Assets denominated in a foreign currency minus liabilities denominated in the same foreign currency.High risk – a large difference; Low risk – a small differenceHigh risk manifests itself when exchange rates change adversely and the value of the bank’s net position of assets versus liabilities denominated in a currency changes sharply.e. Operational risk: total assets/number of employeesHigh risk – low ratio; Low risk – high ratioHigh risk manifests itself when the bank operates at low productivity measured by more employees per amount of assetsf. Capital/solvency risk: Stockholders’ equity/AssetsHigh risk - low ratio; Low risk - high ratioHigh risk manifests itself because fewer assets must go into default before a bank is insolvent and can be closed down by regulators.g. Reputational risk is difficult to measure ex ante. It is more observable by announced problems and issues.6. Equity multiplierBank L: Equity/Assets = 0.06 indicates Assets/Equity = 16.67XBank S: Equity/Assets = 0.10 indicates Assets/Equity = 10XIf each bank earns 1.5% on assets (ROA = 0.015), then the ROEs will equal 25% (Bank L) and 15% (Bank S). If, instead, each bank reports a loss with ROA = -0.012, then the ROEs will equal -20% (Bank L) and -15% (Bank S). When banksare profitable, financial leverage has the positive effect of increasing ROE; when banks report losses, financial leverage increases the magnitude of loss in terms of a negative ROE.7. ROE= net income/stockholders' equityROA = net income/total assetsEM = total assets/stockholders' equityER = total operating expense/total assetsAU = total revenue/total assetsBalance sheet figures should be measured as averages over the period of time the income number is generated.ROE = ROA x EM ROA = AU – ER – TAXwhere TAX = applicable income tax/total assets.8. Profitability ratios differ across banks of different size as measured by assets. The primary reasons are that different size banks have different asset and liability compositions and engage in different amounts of off-balance sheet activities. Typically, small banks report higher net interest margins because their average asset yields are relatively high while their average cost of funds is relatively low. This reflects loans to higher risk borrowers, on average, and proportionately more funding from lower cost core deposits. ROEs, in turn, are often lower because small banks operate with more capital relative to assets, that is with lower equity multipliers, so that even with comparable ROAs the ROEs are lower. Large banks ROAs are increasing faster over time because large banks operate with lower efficiency ratios as they have been more successful in generating fee income.9. CAMELSa. C =capital adequacy: equity/assetsb. A = asset quality: nonperforming loans/loans; loan charge-offs/loansc. M = management: no single ratio is good, although all ratios indicate overall strategyd. E = earnings: aggregate profit ratios; ROE, ROA, net interest margin, burden, efficiencye. L = liquidity: core deposits/assets; noncore, purchased liabilities/assets; marketable securities/assetsf. S = sensitivity to market risk; |repriceable assets-repriceable liabilities|/assets; difference in assets and liabilitiesdenominated in the same currency; size of trading positions in commodities, equities and other tradeable assets.10. Lowest to highest liquidity risk: 3-month T-bills, 5-year Treasury bond, 5-year municipal bond (if high quality and from a known issuer), 4-year car loan with monthly payments (receive some principal monthly, may be saleable), 1-year construction loan, 1-year loan to individual, pledged 3-month T-bill. As stated, the 3-month T-bill that is pledged as collateral is illiquid unless the bank can change its collateral status.11. Comparative credit riska. loan to a comer grocery store representing a little known borrower with uncertain financialsb. loan collateralized with inventory (work in process) because the collateral is less liquid and more difficult to value;this assumes that the receivables are still viable and not too aged.c. normally the Ba-rated municipal bond, unless the agency bond is an "exotic" mortgage backed security, because theagency bond carries an implied guarantee in that Freddie Mac is a quasi-public borrower.d. 1-year car loan because the student loan is typically government guaranteed12. For the balance sheet: high core deposits/assets; high equity/assets; low noncore, purchased liabilities/assets; high investment securities/assets; high agriculture loans/assets (the value refers to that for small banks); For the income statement: net interest margin (high); burden/assets (high), efficiency ratio (high); (the descriptor in parentheses refers to the relationship for small banks versus larger banks).13. Extending a loana. the new loan is typically not classified as nonperforming because no payments are past dueb. often a bank recognizes that the loan is in the problem stage and the borrower renegotiates the terms in its favor;rationale is that the borrower may default if the loan is not restructured. Note that this restructuring gives theappearance that asset quality is higher.c. the primary risk is that the bank is throwing more money down a sink hole and will never recover any of its loan.14. Dividend payment: For: the loss is temporary and stockholders expect the dividend payment. Failure to make the payment will sharply lower the stock price because stockholders will be alienated. Against: the bank has not generated sufficient cash to make the payment from normal operations. By paying the cash dividend, the bank is self-liquidating. The cash dividend will lower the bank’s capital. What normally decides the issue is whether the loss is truly temporary or more permanent. Management typically errs by assuming that losses are temporary, and thus continues to make dividend payments when it should be reducing or eliminating them.15.Liquidity risk:a.Securities classified as held-to-maturity cannot be sold unless there has been an unusual change in the underlyingcredit quality of the security issuer. A high fraction indicates low liquidity because few securities (just 5% of the total) can be sold.b. A low core deposit base indicates a bank that relies proportionately more on noncore, volatile liabilities that are lessstable and more likely to leave the bank if rates change. This makes a bank’s funding sources less reliable and the bank subject to greater liquidity risk.c. A bank that holds long-term securities (8 years is long term) has assumed significant price risk even if the securitiescan be readily sold because they are classified as available-for-sale. Such securities will fall in value if interest rates rise. This indicates high liquidity risk.d.Assuming that $10 million in securities is sufficient, the fact that none are pledged makes them more liquid and isindicative of lower liquidity risk than if any securities were pledged.Problems1. Community National Bank (CNB)1. Profitability analysis for 2004 using UBPR figures:RATIO Community National Bank Peer BanksROE 8.67% 11.72%ROA 0.63 1.09EM 13.97X 10.67XAU 5.91 6.23ER 4.94 4.73TAX 0.34 0.41a.Aggregate profitability for CNB is substantially lower measured both by both ROE and ROA. Because CNB has less equity relative to assets, it has greater financial leverage. Thus, the greater financial leverage increases CNB’s ROE relative to peer banks. The fact that its ROE is lower, despite the greater leverage, indicates that the higher risk does not produce higher overall profitability. CNB has assumed a riskier profile with its greater financial leverage in that fewer assets can default before the bank is insolvent. CNB’s ROA is lower because it earns a lower average yield on assets (AU), pays more in operating expense (ER), offset somewhat by the fact that it pays less in taxes (TAX).b.Risk ComparisonCredit risk: same net charge-offs, much lower nonperforming (more than 90 days past due) and nonaccrual loans, higher provisions for loan losses (.30% versus 0.18%); loan loss reserve is a greater fraction of total loans and leases and a much greater fraction of noncurrent loans. Overall, the ratios indicate below-average risk. Of course, these figures represent only one year of data.Liquidity risk: lower equity to assets suggests higher liquidity risk from a funding perspective, higher available for sale securities and lower pledged securities suggests lower liquidity risk from the asset sale perspective; very high core deposits, low noncore funding (liabilities), low loans and leases and high ST securities suggest lowerliquidity risk. Overall, liquidity risk appears lower because the bank has a strong core deposit base, fewer loans and more securities can be readily sold. Still, the bank might have difficulty borrowing if loans exhibit low qualityand deposit outflows arise. Conclusion: below-average liquidity risk.Capital Risk: low capital to asset ratios; low equity to assets indicate above average capital risk; bank pays less out in dividends and its growth rate in equity capital is lower. Overall, the bank exhibits greater capital risk. Thissituation is offset by the bank’s apparent higher quality assets.Operational risk: low assets to employees ratio, high personnel expense to employees and high efficiency ratio indicate high operational risk. Of course, these data do not capture the likelihood of fraud and other potentialoperational problems.c.Recommendations:1)Impro ve the bank’s capital position; slow asset growth and pursue greater profits.2)Evaluate credit risk carefully; ensure that loans are adequately diversified and that any default of a single loan ortype of loans cannot place the bank’s capital at risk to where regulators will restrict the bank’s activities. Slow loan growth until capital base is at target. Implement a formal credit risk review process.3)Improve operating efficiency. Review noninterest expense sources and cut costs where possible.4)The first t wo suggestions will have the impact of lowering the bank’s earnings, ceteris paribus. Therefore,management should focus on growing sources of noninterest income that currently are not being pursued.2.Citibank UBPRa.In 2004, Citibank’s ROE equaled 15.26% while its ROA equaled 1.49% versus peers’ figures of 14.58% and 1.31%,respectively. Citibank’s equity multiplier (EM = ROE/ROA) equaled approximately 10.24X versus 11.13X for peers. Citibank’s AU is higher at 8.83% (5.25% + 3.58%) versus 7.69% (4.46% + 3.23%) at peers. Citibank clearly generated higher gross revenues from both interest and noninterest sources. Citibank’s expense ratio (ER), in turn, equaled 6.27% while ER for peers was much lower for each type of expense and in total at 4.23%. Based on the profit figures alone, Citibank appears to be a high performance bank and achieves that by generating greater relative revenues.b.Citibank’s credit risk (as evidenced only by the ratios provided) appears high as net losses to loans is higher thanPeers (1.58% versus 0.25%), as is noncurrent loans and leases as a fraction of loans (1.78% versus 0.59%). The loss allowance (reserve) is a higher fraction of loans, but a much smaller fraction of net losses (charge-offs) andnoncurrent loans indicating that more reserves might be appropriate.c.Citibank’s liquidity risk appears high as the bank has a lower equity to asset (tier 1 leverage capital) ratio and reliesmuch more on noncore liabilities (noncore fund dependence). With its greater credit risk, you might expect it to operate with greater equity capital. Similarly, the bank is growing at a fast pace which generally increases overall risk because management cannot easily control risk from growth.d.Recommendations:Carefully assess credit risk; realign portfolio where appropriate.Increase the loan loss reserve.Slow loan growth and/or shift loans to less risky classes.Line up additional sources of liquidity.Review pricing of loans and deposits; identify sources of fees/noninterest income to see if they are sustainable.。

商业银行管理彼得S罗斯英文原书第8版英语试题库Chap002知识讲解

商业银⾏管理彼得S罗斯英⽂原书第8版英语试题库Chap002知识讲解商业银⾏管理彼得S 罗斯英⽂原书第8版英语试题库C h a p002Chapter 2The Impact of Government Policy and Regulation on the Financial-Services IndustryFill in the Blank Questions1. The _____________________ was created as part of the Glass Steagall Act. In the beginningit insured deposits up to $2,500.Answer: FDIC2. The________________________ is the law that states that a bank must get approved from theirregulatory body in order to combine with another bank.Answer: Bank Merger Act3. One tool that the Federal Reserve uses to control the money supply is _________________ .The Federal Reserve will buy and sell T-bills when they are using this tool of monetary policy.Answer: open market operations4. The__________________________ was created in 1913 in response to a series of economicdepressions and failures. Its principal role is to serve as the lender of last resort and to stabilizethe financial markets.Answer: Federal Reserve5. The __________________________ prevented banks from crossing state lines and made nationalbanks subject to the branching laws of their state. This act was later repealed by the Riegle Neal Interstate Banking law. Answer: McFadden-Pepper Act6. Because the FDIC levies fixed insurance premiums regardless of risk, this leads to a problemcalled the ____________________ among banks. The fixed premiums encourage all banks to accept greater risk. Answer: moral hazard7. In 1980, __________________________ was passed and lifted government ceilings on depositinterest rates in favor of free market interest rates.Answer: DIDMCA8. One tool that the Federal Reserve uses to control the money supply is _________________.The Federal Reserve will change the interest rate they charge for short term loans when they are using this tool of monetary policy.Answer: changing the discount rate9. The first major federal banking law in the U.S. was the __________________________. Thislaw was passed during the Civil War and set up a system for chartering national banks andcreated the OCC.Answer: National Banking Act10. The_________________________ was passed during the Great Depression. It separatedinvestment and commercial banks and created the FDIC.Answer: Glass-Steagall Act11. The__________________________ brought bank holding companies under the jurisdiction ofthe Federal Reserve.Answer: Bank Holding Company Act12. The__________________________ allows bank holding companies to acquire banks anywherein the United States. However, no one bank can control more than 30 percent of the deposits in any one state or more than 10 percent of the deposits across the country.Answer: Riegle-Neal Interstate Banking Act13. The allows banks to affiliate with insurance companies andsecurities firms either through a holding company or as a subsidiary.Answer: Gramm-Leach-Bliley Act (Financial Services Modernization Act)14. Customers of financial-service companies may _____________________ of having their privateinformation shared with a third party such as a telemarketer. However, in order to do this they must tell the financial-services company in writing that they do not want their personalinformation shared with outside parties.Answer: opt out15. The federal bank regulatory agency which examines the most banks is the ______________.Answer: FDIC16. The _________________ requires financial service companies to report suspicious activity incustomer accounts to the Treasury Department.Answer: U.S. Patriot Act17. The central bank of the new European Union is known as the _______________________.Answer: European Central Bank or ECB18. The _____________________ Act prohibits banks and other publicly owned firms frompublishing false or misleading financial performance information.Answer: Sarbanes-Oxley19.One of the main roles of the Federal Reserve today is . They have three toolsthat they use today to carry out this role; open market operations, the discount rate and legalreserve requirements.Answer: monetary policy20.The is the center of authority and decision making within theFederal Reserve. It consists of seven members appointed by the president for terms notexceeding 14 years.Answer: Board of Governors21.The main regulators of insurance companies are .Answer: state insurance commissions22.Federal Credit Unions are regulated and examined by .Answer: the National Credit Union Administration.23.The makes it easier for victims of identity theft to file fraudalerts and allows the public to apply for a free credit report once a year.Answer: Fair and Accurate Credit Transactions Act (FACT Act)24.The makes it faster and less costly for banks to clear checks.It allows for banks to electronically send check images instead of shipping paper checks across the country.Answer: Check 21 Act25.The was created by the National Banking Act and is part ofthe Treasury Department. It is the primary regulator of National Banks.Answer: Office of the Comptroller of the Currency (OCC)26.The _________________________ proposes various regulations applying to the financialmarkets to combat the recent credit crisis. This “bail-out” bill granted the US Treasury the means to purchase troubled loans, allowed the FDIC to temporarily increase deposit insurance, andpermitted the government to inject additional capital into the banking system.Answer: The Emergency Economic Stabilization Act of 2008True/False QuestionsT F 27. Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation.Answer: FalseT F 28. In the United States, fixed fees charged for deposit insurance, regardless of how risky a bank is, led to a problem known as moral hazard.Answer: TrueT F 28. Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk.Answer: FalseT F 29. The Federal Reserve changes reserve requirements frequently because the affect of these changes is so small. Answer: FalseT F 30. The Bank Merger Act and its amendments requires that Bank Holding Companies be under the jurisdiction of the Federal Reserve.Answer: FalseT F 31. National banks cannot merge without the prior approval of the Comptroller of the Currency.Answer: TrueT F 32. The Truth in Lending (or Consumer Credit Protection) Act was passed by the U.S.Congress to outlaw discrimination in providing bank services to the public.T F 33. The federal law that states individuals and families cannot be denied a loan merely because of their age, sex, race, national origin or religious affiliation is known as theCompetitive Equality in Banking Act.Answer: FalseT F 34. Under the terms of the 1994 Riegle-Neal Interstate Banking law bank holding companies can acquire a bank anywhere inside the United States, subject to Federal Reserve Boardapproval.Answer: TrueT F 35. The 1994 federal interstate banking bill does not limit the percentage of statewide ornationwide deposits that an interstate banking firm is allowed to control.Answer: FalseT F 36. The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central governmentand local governments regulate banks.Answer: FalseT F 37. The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks and causes banks to accept greater risk.Answer: TrueT F 38. When the Federal Reserve buys T-bills through its open market operations, it causes the growth of bank deposits and loans to decrease.Answer: FalseT F 39. When the Federal Reserve increases the discount rate it generally causes other interest rates to decrease. Answer: FalseT F 40. The National Bank Act (1863) created the Federal Reserve which acts as the lender of last resort.Answer: FalseT F 41. FIRREA (1989) allowed bank holding companies to acquire nonblank depository institutions and, if desired, convert them into branch offices.Answer: TrueT F 42. The Sarbanes-Oxley Act allows banks, insurance companies, and securities firms to form Financial Holding Companies (FHCs).Answer: FalseT F 43. The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s.Answer: TrueT F 44. Passed in 1977, the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live.Answer: FalseT F 45. The tool used by the Federal Reserve System to influence the economy and behavior of banks is known as moral hazard.T F 46. One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system.Answer: TrueMultiple Choice Questions47.Banks are regulated for which of the reasons listed below?A) Banks are leading repositories of the public's savings.B) Banks have the power to create money.C) Banks provide businesses and individuals with loans that support consumption andinvestment spending.D) Banks assist governments in conducting economic policy, collecting taxes and dispensinggovernment payments.E) All of the above.Answer: E48.An institutional arrangement in which federal and state authorities both have significant bankregulatory powers is referred to as:A) Balance of PowerB) FederalismC) Dual Banking SystemD) Cooperative RegulationE) Coordinated ControlAnswer: C49.The law that set up the federal banking system and provided for the chartering of national bankswas the:A) National Bank ActB) McFadden-Pepper ActC) Glass-Steagall ActD) Bank Merger ActE) Federal Reserve ActAnswer: A50.The federal law that prohibited federally supervised commercial banks from offering investmentbanking services on privately issued securities is known as:A) The Glass-Steagall ActB) The Bank Merger ActC) The Depository Institutions Deregulation and Monetary Control ActD) The Federal Reserve ActE) None of the AboveAnswer: A51.The Gramm-Leach-Bliley Act (Financial Services Modernization Act) calls for linkinggovernment supervision of the financial-services firm to the types of activities that the firmundertakes. For example the insurance portion of the firm would be regulated by stateinsurance commissions and the banking portion of the firm would be regulated by bankingregulators. This approach to government supervision of financial services is known as:A) Consolidated regulation and supervision.B) Functional regulation.C) Services oversight.D) Umbrella supervision and regulation.E) None of the above.Answer: B52.The Federal Reserve policy tool under which the Fed attempts to bring psychological pressure tobear on individuals and institutions to conform to the Fed's policies, using letters, phone calls, and speeches, is known as:A) Margin requirementsB) Moral suasionC) Discount window supervisionD) Conference and compromiseE) None of the above.Answer: B53.The 1994 law that allowed bank holding companies to acquire banks anywhere in the U.S. is:A) The Glass-Steagall ActB) The Federal Deposit Insurance Corporation Improvement ActC) The National Bank ActD) The Riegle-Neal Interstate Banking and Branching Efficiency Act.E) None of the above.Answer: D54.The federal law that allowed the Federal Reserve to set margin requirements is:A) The National Banking Act.B) The McFadden-Pepper Act.C) The Glass Steagall Act.D) The Federal Reserve Act.E) None of the above.Answer: C55.Of the principal reasons for regulating banks, what was the primary purpose of the National Banking Act (1863)?A) Protection of the public's savingsB) Control of the money supplyC) Providing support for government activitiesD) Maintaining confidence in the banking systemE) Preventing banks from realizing monopoly powersAnswer: C56.Of the principal reasons for regulating banks, what was the primary purpose of the Federal Reserve Act of 1913?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: B57.The law that allows lifted government deposit interest ceilings and allowed them to pay a competitive interest rate is:A) The National Banking Act.B) The Glass Steagall Act.C) The Bank Merger Act.D) DIDMCAE) None of the above.Answer: D58.The law that allows banks to affiliate with insurance companies and security brokerage firms to form financial services conglomerates isA) The National Banking ActB) The Glass Steagall ActC) The Garn St. Germain ActD) The Riegle Neal Interstate Banking ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: E59.Of the principal reasons for regulating banks, what was the primary purpose of the Truth in Lending Law?A) Protection of the public's savingsB) Control of the money supplyC) Preventing banks from realizing monopoly powersD) Ensuring an adequate and fair supply of loansE) None of the above.Answer: D60.Which of the following is an unresolved issue in the new century?A) What should be done about the regulatory safety net set up to protect small depositors?B) If financial institutions are allowed to take on more risk, how can taxpayers be protected from paying the bill when more institutions fail?C) Does functional regulation actually work?D) Should regulators allow the mixing of banking and commerce?E) All of the above are unresolved issuesAnswer: E61.The law that made bank and nonbank depository institutions more alike in the services they could offer and allowed banks and thrifts to more fully compete with other financial institutions is:A) The National Banking ActB) The Federal Reserve ActC) The Garn-St. Germain ActD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) The Gramm-Leach-Bliley Act (Financial Services Modernization Act)Answer: C62.The law that allowed bank holding companies to acquire nonbank depository institutions and convert them to branches is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) None of the AboveAnswer: C63.The equivalent of the Federal Reserve System in Europe is known as the:A) European UnionB) Bank of LondonC) Basle GroupD) European Central BankE) Swiss Bank CorporationAnswer: D64.The new financial organization created by Gramm-Leach-Bliley is theA) Financial Holding CompanyB) Bank Holding CompanyC) European Central BankD) Financial Service CorporationE) Financial Modernization OrganizationAnswer: A65.The act which requires financial institutions to share information about customer identities withgovernment agencies is:A) The Sarbanes-Oxley ActB) The U.S. Treasury Department ActC) The 9/11 ActD) The USA Patriot ActE) The Gramm-Leach-Bliley ActAnswer: D66.The 1977 law tha t prevents banks from “redlining” certain neighborhoods, refusing to serve thoseareas is:A) The National Banking ActB) The Garn-St. Germain ActC) FIRREAD) The Riegle-Neal Interstate Banking and Branching Efficiency ActE) Community Reinvestment Act (CRA)Answer: E/doc/8675d23f58cfa1c7aa00b52acfc789eb172d9e2d.html mon minimum capital requirements on banks in leading industrialized nations that are basedon the riskiness of their assets is imposed by:A) The National Banking ActB) FIRREAC) The International Banking ActD) The Basel AgreementE) None of the AboveAnswer: D68.The fastest growing crime in the U.S. is:A) Financial statement misrepresentationB) Bank robberiesC) Individual privacy violationsD) Credit card fraudE) Identity theftAnswer: E69.The oldest federal bank agency is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: A70.The federal agency that regulates the most banks is the:A) OCCB) FDICC) FRSD) FHCE) BHCAnswer: B71.Which federal banking act requires that financial service providers establish the identity of anycustomers opening new accounts?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: B72.Which federal banking act prohibits publishing false or misleading information about thefinancial performance of a public company and requires top corporate officers to vouch for the accuracy of their company’s financial statements?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: A73.Which federal banking act reduces the need for banks to transport paper checks across theA) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: C74.Which federal banking act forces more individuals to repay at least part of what they owe andwill push higher-income borrowers into more costly forms of bankruptcy?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: E75.Which federal banking act requires the Federal Trade Commission to make it easier for victims of identity theft to make theft reports and requires credit bureaus to help victims resolve the problem?A) Sarbanes-Oxley ActB) USA Patriot ActC) Check 21 ActD) The FACT ActE) Bankruptcy Abuse Prevention and Consumer Protection ActAnswer: D76.The _________ allows adequately capitalized bank holding companies to acquire banks in any state.A)Riegle-Neal Interstate Banking and Branching Efficiency ActB)Competitive Equality Banking ActC)Financial Institutions Reform, Recovery and Enforcement ActD)Federal Deposit Insurance Corporation Improvement ActE)Depository Institutions Deregulation and Monetary Control ActAnswer: A77.One of the earliest theories regarding the impact of regulation on banks was developed by George Stigler. He contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolisticB) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulated firms.D) Depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges.E) None of the aboveAnswer: A78.Samual Peltzman had an opposing view to George Stigler on the impact of regulation on banks. He contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolistic rents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulated firms.D) Depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges.E) None of the aboveAnswer: B79.There is an important debate raging today regarding whether banks should be regulated at all. George Benston contends that:A) Firms in regulated industries actually seek out regulations because they bring monopolistic rents.B) Regulations shelter firms from changes in demand and cost, lowering its risk.C) Regulations can increase consumer confidence which increases customer loyalty to regulated firms.D) Depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges.E) None of the aboveAnswer: D80.The European Central Bank has the main goal of:A) Ensuring the economy grows at an adequate rate.B) Keeping unemployment low.C) Ensuring price stability.D) Ensuring an adequate and fair supply of loans.E) All of the aboveAnswer: C81.Which of the following has become the principal tool of central bank monetary policy today?A) Open market operationsB) Changing the discount rateC) Changing reserve requirementsD) Using moral suasionE) None of the aboveAnswer: A82.The Federal Reserve buys Treasury Bills in the open market. This will tend to:A) Cause interest rates in the market to riseB) Cause interest rates in the market to fallC) Cause reserves held at the Federal Reserve to decreaseD) Cause a decrease in the growth of deposits and loansE) All of the aboveAnswer: B83.Which federal banking act extends deposit insurance coverage on qualified retirement accountsfrom $100,000 to $250,000 and authorizes the FDIC to periodically increase deposit insurance coverage to keep up with inflation?A) Sarbanes-Oxley ActB) The Gramm-Leach-Bliley ActC) Check 21 ActD) The FACT ActE) Federal Deposit Insurance Reform ActAnswer: E84.The Financial Services Regulatory Relief Act of 2006 does the following:A) Adds selected new service powers to depository institutionsB) Loosens regulations on depository institutionsC) Grants the Federal Reserve authority to pay interest on depository institutions’ legal reservesD) All of the aboveE) None of the aboveAnswer: D85.The Emergency Economic Stabilization Act passed in 2008 during the global credit crisis allowedthe following:A) An emergency sale of “bad assets”B) Temporary increase of FDIC deposit insurance to $250,000 for all depositsC) Injections of capital by the government into banks and other qualified lendersD) Closer surveillance of the mortgage market participants, such as brokers and lendersE) All of the aboveAnswer: E。

商业银行管理ROSE7e课后答案chapter-

商业银行管理ROSE7e课后答案chapter_CHAPTER 10THE INVESTMENT FUNCTION IN BANKING AND FINANCIAL SERVICES MANAGEMENTGoal of This Chapter: The purpose of this chapter is to discover the types of securities that financial institutions acquire for their investment portfolio and to explore the factors that a manager should consider in determining what securities a financial institution should buy or sell.Key Topics in This ChapterNature and Functions of InvestmentsInvestment Securities Available: Advantages and DisadvantagesMeasuring Expected ReturnsTaxes, Credit, and Interest Rate RisksLiquidity, Prepayment, and Other RisksInvestment Maturity StrategiesMaturity Management T oolsChapter OutlineI. Introduction: The Roles Performed by Investment Securities in Bank PortfoliosII. Investment Instruments Available to Banks and Other Financial FirmsIII. Popular Money-Market InstrumentsA. Treasury BillsB. Short-Term Treasury Notes and BondsC. Federal Agency SecuritiesD. Certificates of DepositE. International Eurocurrency DepositsF. Bankers' AcceptancesG. Commercial PaperH. Short-Term Municipal ObligationsIV. Popular Capital Market InstrumentsA. Treasury Notes and BondsB. Municipal Notes and BondsC. Corporate Notes and BondsIII. Other Investment Instruments Developed More RecentlyA. Structured NotesB. Securitized AssetsC. Stripped SecuritiesIV. Investment Securities Actually Held by BanksV. Factors Affecting the Choice of Investment SecuritiesA. Expected Rate of ReturnB. Tax Exposure1. The Tax Status of State and Local Government Bonds2. Bank Qualified Bonds3. Tax Swapping Tool4. The Portfolio Shifting ToolC. Interest-Rate RiskD. Credit or Default RiskE. Business RiskF. Liquidity RiskG. Call RiskH. Prepayment RiskI. Inflation RiskJ. Pledging RequirementsVI. Investment Maturity StrategiesA. The Ladder or Spaced-Maturity PolicyB. The Front-End Load Maturity PolicyC. The Back-End Load Maturity PolicyD. The Barbell StrategyE. The Rate Expectations ApproachVII. Maturity Management ToolsA. The Yield CurveB. DurationVIII. Summary of the ChapterConcept Checks10-1. Why do banks and institutions choose to devote a significant portion of their assets to investment securities?Investments perform many different roles that act as a necessary complement to the advantages loans provide. Investments generally have less credit risk than loans, allow the bank or thrift institution to diversify into different localities than most of its loans permit, provide additional liquid reserves in case more cash is needed, provide collateral as called for by law and regulation to back government deposits, help to stabilize bank income over the business cycle, and aid banks in reducing their exposure to taxes.10-2. What key roles do investments play in the management of a bank or other depository institution?See answer to 10-110-3. What are the principal money market and capital market instruments available to institutions today? What are their most important characteristics?Banks purchase a wide range of investment securities. The principal money market instruments available to banks today are Treasury bills, federal agency securities, CD's issued by other depository institutions, Eurodollar deposits, bankers' acceptances, commercial paper, and short-term municipalobligations. The common characteristics of most these instruments is their safety and high marketability. Capital market instruments available to banks include Treasury notes and bonds, state and local government notes and bonds, mortgage-backed securities, and corporate notes and bonds. The characteristics of these securities is their long run income potential.10-4. What types of investment securities do banks prefer the most? Can you explain why?Commercial banks clearly prefer these major types of investment securities: United States Treasury securities, federal agency securities, and state and local government (municipal) bonds and notes. They hold small amounts of equities and other debt securities (mainly corporate notes and bonds). They pick these types because they are best suited to meet the objectives of a banks investment portfolio, such as tax sheltering, reducing overall risk exposure, a source of liquidity and naturally generating income as well as diversifying their assets.10-5. What are securitized assets? Why have they grown so rapidly in recent years?Securitized assets are loans that are placed in a pool and, as the loans generate interest and principal income, that income is passed on to the holders of securities representing an interest in the loan pool. These loan-backed securities are attractive to many banks because of their higher yields and frequent federal guarantees (in the case, for example, of most home-mortgage-backed securities) as well as their relatively high liquidity and marketability10-6. What special risks do securitized assets present to institutions investing in them?Securitized assets often carry substantial interest-rate riskand prepayment risk, which arises when certain loans in the securitized-asset pool are paid off early by the borrowers (usually because interest rates have fallen and new loans can be substituted for the old loans at cheaper loan rates) or are defaulted. Prepayment risk can significantly decrease the values of securities backed by loans and change their effective maturities.10-7. What are structured notes and stripped securities? What unusual features do they contain?Structured notes usually are packaged investments assembled by security dealers that offer customers flexible yields in order to protect their customers' investments against losses due to inflation and changing interest rates. Most structured notes are based upon government or federal agency securities.Stripped securities consist of either principal payments or interest payments from a debt security. The expected cash flow from a Treasury bond or mortgage-backed security is separated into a stream of principal payments and a stream of interest payments, each of which may be sold as a separate security maturing on the day the payment is due. Some of these stripped payments are highly sensitive to changes in interest rates.10-8. How is the expected yield on most bonds determined?For most bonds, this requires the calculation of the yield to maturity (YTM) if the bond is to be held to maturity or the planned holding period yield (HPY) between point of purchase and point of sale. YTM is the expected rate of return on a bond held until its maturity date is reached, based on the bond's purchase price, promised interest payments, andredemption value at maturity. HPY is a rate of discount bringing the current price of a bond in line with its stream ofexpected cash inflows and its expected sale price at the end of the bank's holding period.10-9. If a government bond is expected to mature in two years and has a current price of $950, what is the bond's YTM if it has a par value of $1,000 and a promised coupon rate of 10 percent? Suppose this bond is sold one year after purchase for a price of $970. What would this investor's holding period yield be?The relevant formula is:$950 = 221Y TM) 1(1000$Y TM) (1$100 Y TM) 1(100$+++++ Using a financial calculator we get:YTM = 12.99%If the bond is sold after one year, the formula entries change to:$950 = 11Y TM) (1$970 Y TM) 1(100$+++and the YTM is:YTM = 12.63%10-10. What forms of risk affect investments?The following forms of risk affect investments: interest-rate risk, credit risk, business risk, liquidity risk, prepayment risk, call risk, and inflation risk. Interest-rate risk captures the sensitivity of the value of investments to interest-rate movements, while credit risk reflectsthe risk of default on either interest or principal payments. Business risk refers to the impact of credit conditions and the economy, while liquidity risk focuses on the price stability and marketability of investments. Prepayment risk is specific to certain types of investments and focuses on the fact that some loans which the securities are based on can be paid off early. Call risk refers to the early retirement of securities and inflation riskrefers to their possible loss of purchasing power.。

商业银行管理Bank Managment

CHAPTER 15THE MANAGEMENT OF CAPITALGoal of This Chapter: The purpose of this chapter is to discover why capital – particularly equity capital – is so important for financial institutions, to learn how managers and regulators assess the adequacy of a n institution’s capital position, and to explain the ways that management can raise new capital.Key Topics in This Chapter∙The Many Tasks of Capital∙Capital and Risk Exposures∙Types of Capital In Use∙Capital as the Centerpiece of Regulation∙Basel I and Basel II∙Planning to Meet Capital NeedsChapter OutlineI. Introduction: What Is Capital?II. The Many Tasks Capital PerformsA. Cushion Against Risk of FailureB. Provides Funds Needed to Begin OperationsC. Promotes Public ConfidenceD. Provides Funds for Future Growth and New ServicesE.Regulator of GrowthF.Capital Plays a Role in MergersG.Limits How Much Risk Exposure Banks and Competing Firms Can AcceptH.Protects the Government’s Deposit Insurance SystemIll. Capital and RiskA. Key Risks in Banking an d Financial Institutions’ Management1. Credit Risk2. Liquidity Risk3. Interest-Rate Risk4. Operating Risk5. Exchange Risk6. Crime RiskB. Defenses against Risk1. Quality Management2. Diversificationa. Portfoliob. Geographic3. Deposit Insurance4. Owners' CapitalIV. Types of CapitalA. Common StockB. Preferred StockC. SurplusD. Undivided ProfitsE. Equity ReservesF. Subordinated DebenturesG. Minority Interest in Consolidated SubsidiariesH. Equity Commitment NotesI. Relative Importance of the Different Sources of CapitalV. One of the Great Issues in the History of Banking: How Much Capital Is Really Needed?A. Regulatory Approach to Evaluating Capital Needs1. Reasons for Capital Regulation2. Research EvidenceVI. The Basle Agreement on International Capital Standards: An Historic Contract among Leading NationsA. Basel I1. Tier One Capital2. Tier Two Capital3. Calculating Risk-Weighted Assets Under Basle I4. Calculating the Capital-to Risk-Weighted Assets Ratio Under Basel IB. Capital Requirements Attached to Derivatives1. Bank Capital Standards and Market Risk2. Market Risk and Value at Risk (VaR) Models3. Value at Risk (VAR) Models4. Limitations and Challenges of VaR and Internal ModelingC. Basel II: A New Capital Accord Unfolding1. Pillars of Basel II2.Internal Risk Assessment3.Operational Risk4.Basel II and Credit Risk Models5. A Dual (Large-Bank, Small-Bank) Set of Rules6.Problems Accompanying the Implementation of Basel IIVII. Changing Capital Standards Inside the United StatesA. FDIC Improvement ActB. Prompt Corrective Action1. Well Capitalized2. Adequately Capitalized3. Undercapitalized4. Significantly Undercapitalized5. Critically Undercapitalized204VIII. Planning To Meet Capital NeedsA. Raising Capital Internally1. Dividend Policy2. How Fast Must Internally Generated Funds Grow?B. Raising Capital Externally1. Issuing Common Stock2. Issuing Preferred Stock3. Issuing Subordinated Notes and Debentures4. Selling Assets and Leasing Facilities5. Swapping Stock for Debt Securities6. Choosing the Best Alternative for Raising Outside CapitalIX. Summary of the ChapterConcept Checks15-1. What does the term capital mean as it applies to financial institutions?Funds contributed to a financial institution primarily by its owners, consisting mainly of stock, reserves, and retained earnings, plus any long-term debt issued that qualifies under regulations.15-2. What crucial role does capital play in the management and viability of financial firm?Capital provides the long-term, permanent funding that is needed to construct facilities and provide a base for the future expansion of assets. Capital also absorbs operating losses until management has a chance to correct the institution's problems. From a regulatory perspective capital limits the growth of risky assets.15-3. What are the links between capital and risk exposure among financial service providers?Capital functions as a cushion to absorb losses until management can correct the problems generating those losses. Institutions face many different kinds of risk: (1) crime risk, (2) interest-rate risk, (3) credit risk, (4) liquidity risk, (5) exchange risk and (6) operational risk. Capital represents the ultimate line of defense against these risks when all other defenses fail.15-4. What forms of capital are in use today? What are the key differences between the different types of capital?The principal forms of bank capital include common and preferred stock, surplus, retained earnings, and subordinated notes and debentures. Common stock represents the par value paid by owners, while surplus is the amount paid over par value for the stock when it is first sold. Preferred stock is a special type of ownership where dividends are fixed and stockholders generally do not have a vote on major activities undertaken by the firm. Retained earnings are the accumulated earnings of the firm kept to reinvest back in the company. Subordinated notes and debentures are long term debt instruments that don not represent ownership claims.20515-5. Measured by volume and percentage of total capital, what are the most important and least important forms of capital held by U.S.-insured banks? Why do you think this is so?The most important form of capital is surplus, followed by retained earnings, subordinated notes and debentures and preferred stock. Common stock represents what owners contribute originally when they buy the stock to begin with. Retained earnings represent the growth in earnings that accumulate in the firm over time. What the owners contribute to the firm and the wealth that accumulates over time are the true cushion against loss that capital represents.15-6. How do small banks differ from large banks in the composition of their capital accounts and in the total volume of capital they hold relative to their assets? Why do you think these differences exist?Small banks rely mainly on retained earnings and very little on long term debt, whereas large banks rely on common stock, retained earnings and long term debt. Small banks have a difficult time to place their equity and debt securities in the market and thus, rely more heavily on internal capital (i.e. retained earnings)15-7 What is the rationale for having the government set capital standards for financial institutions, as opposed to letting the private marketplace set those standards?The government's interest in capital stems from its efforts to stabilize the financial system and avoid drains on the federal insurance system. Capital requirements have long been subject to government regulation, though bankers frequently argue that the market, rather than regulators, should determine how much capital a financial institution should hold. The fear among regulators, however, is that financial institutions would hold too little capital to avoid excessive numbers of failures and that the private market cannot adequately assess their need for capital.15-8. What evidence does recent research provide on the role of the private marketplace in determining capital standards?The results of recent studies are varied, but most find that the private marketplace is more important than government regulation in determining the amount and type of capital financial institutions must hold. However, government regulation apparently was at least as important in the 1980s and early 1990s, with the tightening of capital regulations and the imposition of minimum capital requirements.15-9. According to recent research, does capital prevent a financial institution from failing?If capital is large enough to absorb operating losses it can prevent failure for a time, at least until the capital is all used up. However, there is no solid, undisputed evidence of a significant relationship between the size of the capital-to-asset ratio and the incidence of failure.15-10. What are the most popular financial ratios regulators use to assess the adequacy of bank capital today?206The prime capital-adequacy ratios are total capital to assets, equity capital to assets, total capital to risk assets, and primary or core capital and supplementary or secondary capital to total assets and to risk-adjusted assets.15-11. What is the difference between core (or tier 1) capital and supplemental (or tier 2) capital?Core capital is the permanent capital of a bank, consisting mainly of common stock, surplus, retained earnings, and equity reserves. Supplemental capital is secondary forms of bank capital, such as debt securities and limited-life preferred stock and a few qualified intangibles assets.15-12. A bank reports the following items on its latest balance sheet: Allowance for Loan and Lease Losses $42 million; Undivided Profits $81 million; Subordinated Debt Capital $3 million; Common Stock and Surplus $27 million; Equity Notes $2 million; Minority Interest in Subsidiaries $4 million; Mandatory Convertible Debt $5 million; Identifiable Intangible Assets $3 million; and Noncumulative Perpetual Preferred Stock $5 million. How much does the bank hold in Tier 1 capital? In Tier 2 capital? Does the bank have too much Tier 2 capital?The Tier 1 capital items include: The Tier 2 capital items include:Common stock and surplus $27 mill. Allowance for Loan and$42 mill.Lease LossesUndivided Profits 81 Subordinated Debt Capital 3 Noncumulative Perpetual Mandatory Convertible Debt 5Preferred Stock 5 Equity Notes 2 Minority interest in Identifiable Intangible Assets 3Subsidiaries 4Total Tier 1 Capital $117 mill. Total Tier 2 Capital $55 mill.The bank does not have too much Tier 2 capital. Tier 2 capital can be up to 100 percent of the amount of Tier 1 capital and still count toward meeting capital requirements.15-13. What changes in the regulation of bank capital were brought into being by the Basel Agreement? What is Basel I? Basel II?U.S. banks, along with international banks from other industrialized nations, must hold a core or Tier 1 (permanent) capital ratio to risk-adjusted assets of 4 percent and an additional 4 percent in supplementary or secondary capital, under the terms of the Basel Agreement on international capital standards. Basel I refers to the capital standards that are in effect today. Basel II is a new capital requirement accord that is supposed to address the weaknesses of Basel I. It is scheduled to be phased in starting in 2008.15-14. First National Bank reports the following items on its balance sheet: cash $200 million; U.S. government securities $150 million; residential real-estate loans $300 million; and corporate loans $350 million. Its off-balance-sheet items include: standby credit letters, $20 million and long-term credit commitments to corporations, $160 million. What are First207National's total risk-weighted assets? If the bank reports Tier I capital of $30 million and Tier 2 capital of $20 million, does it have a capital deficiency?We first convert the off-balance-sheet items to their credit-equivalent amounts:Off-Balance-Sheet ItemsStandby Credit Letters $20 mill. * 1.00 = $20 mill.Long-Term Commitments to Corporations $160 mill. * 0.50 = 80 mill.Then we risk-weight all assets:Risk-Weighted AssetsCash$200 mill. * 0 = $0 mill.U.S. Government Securities:$150 mill. * 0 = 0Standby Credit Letters:$20 mill. * 0.20 = 4Residential Real Estate Loans:$300 * 0.50 = 150Corporate Loans:$350 * 1.00 = 350Long-Term Credit Commitments:$80 * 1.00 = 80Total Risk-Weighted Assets = $584The bank has total capital of:Tier 1 capital = $30 mill.Tier 2 capital = $20 mill.$50 mill.The bank's capital to risk-weighted asset ratio is:$50 mill. = 0.086 or 8.6%$584 mill.which exceeds the minimum requirement of 8 percent. Moreover, more than 4 percent of the 8.6 percent in capital is Tier 1 capital, so the bank satisfies the capital requirements.15-15. How is the Basel Agreement likely to affect a bank's choices among assets it would like to acquire?208Under the capital standards brought into being by the BaselAgreement, differing risk weights will apply to different kinds of bank assets. Each dollar of high-risk assets, such as corporate loans and home mortgages, requires a greater proportion of bank capital pledged behind it than a dollar of low-risk assets, such as government securities. Banks desiring to keep their capital costs as low as possible will move toward government securities and away from corporate loans and home mortgage loans. They will also change the types of off-balance sheet items they hold for the same reason.15-16. What are the most significant differences between Basel I and Basel II? Explain the importance of the concepts of internal risk assessment, VAR, and market disciplineBasel I used a one size fits all approach to determine a bank’s capital requirements. Basel II recognizes that different banks have different risk exposures and should be subject to different capital requirements. It also broadens the types of risk considered for determining capital requirements, including credit, market and operational risk. Internal risk assessment refers to an innovation in Basel II which allows banks to measure their own risk exposure. These measurements are subject to review by the regulators to ensure that they are reasonable. The VAR model is one of the models used to determine a bank’s risk exposure. It measures the price or market risk of a portfolio of assets whose value may decline due to adverse movements in the financial markets or interest rates. Market discipline refers to the market determining the bank’s risk exposure. In order to achieve that a bank would be required to issue subordinated debt. Since this debt is not guaranteed the buyers of these notes would be very vigilant about the issuing bank’s financial condition.15-17. What steps should be part of any plan for meeting a long-range need for capital?The four key phases of planning to meet a bank's capital needs are as follows:1. Develop an overall financial plan.2. Determine the amount of capital that is appropriate given the goals, planned serviceofferings, acceptable risk exposure, and state and federal regulations.3. Determine how much capital can be generated internally through profits retained inthe business.4. Evaluate and choose that source of external capital best suited to the institution’sneeds and goals.15-18. How does dividend policy affect the need for capital?The retention ratio is of great importance to management. A retention ratio set too low results in slower growth of internal capital, which may increase the failure risk and retard the expansion of earning assets.20915-19. What is the ICGR and why is it important the management of a financial firm?The ICGR indicates how fast a firm can allow its assets to grow and still keep its capital-to-asset ratio fixed. The ICGR indicates how fast earnings must grow and what proportion must be retained in the business to insure a constant capital-asset ratio.15-20. Suppose that a bank has a rate of return on equity capital of 12 percent and its retention ratio is 35 percent. How fast can this bank's assets grow without reducing its current ratio of capital to assets? Suppose that the bank's earnings (measured by ROE) drop unexpectedly to only two-thirds of the expected 12 percent figure. What would happen to the bank's ICGR? The relevant formula is:ICGR = ROE x Retention Ratio= 0.12 * 0.35= 0.042 or 4.2 percentIf ROE unexpectedly drops to only two-thirds of the expected 12 percent figure, the ICGR becomes:ICGR = [0.12 * 0.66] * 0.35= 0.028 or 2.8 percent.15-21. What are the principal sources of external capital for a financial institution?The principal sources of external capital are: selling common stock, selling preferred stock, issuing capital notes, selling assets, or leasing certain fixed assets.15-22. What factors should management consider in choosing among the various sources of external capital?Drawing upon common and preferred stock increases the borrowing capacity and provides permanent capital, but it can result in ownership and earnings dilution. Debt capital is generally cheaper to issue due to the leveraging effect, but creates greater risk of variability in shareholder returns and increased risk failure.210Problems15-1. Carter Savings Association has forecast the following performance ratios for the year ahead. How fast can Carter allow its assets to grow without reducing its ratio of equity capital to total assets, assuming its performance holds reasonably steady over it planning period?Internal Capital Growth Rate = Profit Margin * Asset Utilization * Equity Multiplier *Retention Ratio= 0.0830 * 0.0925 * 15.22 * 0.450= 0.0526 or 5.26%Its assets cannot grow any faster than 5.26 percent in order to avoid reducing its ratio of equity capital to total assets.15-2. Using the formulas developed in this chapter and in chapter 6 and the information that follows, calculate the ratios of total capital to total assets for the banking firm listed below. What relationship among these institution’s return on assets, return on equity capital, and capital to assets ratios did you observe? What implications or recommendations would you draw for the management of each of these institutions?211The basic relationship needed in this problem isROE = Net Income After Taxes = Net Income After Taxes * Total AssetsEquity Capital Total Assets Equity Capital= ROA * Total AssetsEquity Capitalin which case:Total Assets = ROE and Equity Capital = ROAEquity Capital ROA Total Assets ROE Therefore the ratio of total capital to total assets for the banks named in the problem must be: First National Bank of Hopkins = 0.016/0.15 = 0.1067 or 10.67%.Safety National Bank = 0.013/0.13 = 0.1000 or 10.00%Ilsher State Bank = 0.0095/0.100 = 0.0950 or 9.50%Mercantile Bank and Trust Company = 0.0083/0.09 = 0.0922 or 9.22%Lakeside National Bank = -0.0043/-0.0500 = 0.086 = 8.60%None of the banks appear to have a serious capital deficiency problem. However, the bank with the lowest capital to total assets ratio is also the one with a negative return on assets and return on equity. The negative earnings may be eroding the capital position of this bank.21215-3 Using the following information for Sun-Up National Bank, calculate that bank’s ratio of total capital to risk weighted assets under the terms of the Basel I agreement. Does the bank have sufficient capital?Sun-Up National Bank's required level of capital under the new international capital standards would be determined from:Standby Credit Letter: $18.1 million * 1.00 = $18.1 millionLong-Term Credit Commitments: $40.2 million * 0.50 = 20.1 million0% Risk-Weighting CategoryCash $ 3.5 millionU.S. Treasury Securities 25.6 million$ 29.1 * 0 = $0 million20% Risk Weighting CategoryBalances at Domestic Banks $ 4.0 millionCredit Equivalent Amounts ofStandby Credits 18.1 million$ 22.1 million * 0.20 = $4.42 million50% Risk Weighting CategoryResidential Real Estate Loans $ 19.7 million x 0.50 = $9.85 million213100% Risk Weighting CategoryLoans to Corporations $105.3 millionCredit Equivalents ofLong-Term Commitments $20.1 million$125.4 million * 1.0 = $125.4 million Total Risk-Weighted Assets $139.67 millionThe bank's capital ratio is:Total Capital/Risk-Weighted Assets = $ 11.800 million = 8.45%$ 139.67 millionwhich is just above the minimum total capital (Tier One + Tier Two) requirement of 8 percent. 15-4Top of the Mountain Savings has been told by examiners that it needs to raise an additional $8 million in long-term capital. Its outstanding common equity shares total 7.5 million, each bears a par value of $1. This thrift institution currently holds assets of nearly $2 billion, with $105 million in equ ity. During the coming year, the thrift’s economist has forecast operating revenues of $175 million, of which operating expenses are $25 million plus 70 percent of operating revenue.214Among the options for raising capital considered by management are: (a) selling $8 million in new common stock, or 320,000 shares at $25 per share; (b) selling $8 million in preferred stock bearing a 9 percent annual dividend yield at $12 per share; or (c) selling $8 million worth of10-year capital notes with a 10 percent coupon rate. Which option would be of most benefit to the stockholders? (Assume a 35% tax rate) What happens if operating revenue increases more than expected (200 million rather than 175 million)? What happens if there is a slower than expected volume of revenues (only $125 million instead of $175 million). Please explain.(a)Sale of Common Stock at $25 per share(b)Sale of 9%Preferred Stockat $12 per share(c)Sale of 10%Capital NotesOperating Revenues $175,000,000 $175,000,000 $175,000,000 Operating Expenses 147,500,000 147,500,000 147,500,000 Net Revenues $ 27,500,000 $ 27,500,000 $ 27,500,000 Interest on CapitalNotes------------------- ------------------- 800,000Before-Tax Income $27,500,000 $27,500,000 $26,700,000 Estimated IncomeTaxes9,350,000 9,350,000 9,078,000 After-Tax Income $ 18,150,000 $ 18,150,000 $ 17,622,000Preferred StockDividends---------------------- 720,000 ---------------------Net Income for CommonStockholders$ 18,150,000 $ 17,430,000 $ 17,622,000Shares of CommonStockOutstanding7,820,000 7,500,000 7,500,000Earnings Per Share ofCommon Stock$ 2.32 $ 2.32 $ 2.35In this case sale of the debt would yield the highest EPS for the bank's shareholdersBecause of the dilution effect of issuing stock.215If operating revenue rose to $200 million the situation would be the following:(a)Sale of Common Stock at $25 per share(b)Sale of 9%Preferred Stockat $12 per share(c)Sale of 10%Capital NotesOperating Revenues $200,000,000 $200,000,000 $200,000,000 Operating Expenses 165,000,000 165,000,000 165,000,000 Net Revenues $ 35,000,000 $ 35,000,000 $ 35,000,000 Interest on CapitalNotes------------------- ------------------- 800,000Before-Tax Income $35,000,000 $35,000,000 $34,200,000 Estimated IncomeTaxes11,900,000 11,900,000 11,628,000 After-Tax Income $ 23,100,000 $ 23,100,000 $ 22,572,000Preferred StockDividends---------------------- 720,000 ---------------------Net Income for CommonStockholders$ 23,100,000 $ 22,380,000 $ 22,572,000Shares of CommonStockOutstanding7,820,000 7,500,000 7,500,000Earnings Per Share ofCommon Stock$ 2.95 $ 2.98 $ 3.01And again the capital notes would be the best option, although the preferred stock comes closer this time.216If operating revenues drop to $125 million, then the situation would be the following:(a)Sale of Common Stock at $25 per share(b)Sale of 9%Preferred Stockat $12 per share(c)Sale of 10%Capital NotesOperating Revenues $125,000,000 $125,000,000 $125,000,000 Operating Expenses 112,500,000 112,500,000 112,500,000 Net Revenues $ 12,500,000 $ 12,500,000 $ 12,500,000 Interest on CapitalNotes------------------- ------------------- 800,000Before-Tax Income $12,500,000 $12,500,000 $11,700,000 Estimated IncomeTaxes4,250,000 4,250,000 3,978,000 After-Tax Income $ 8,250,000 $ 8,250,000 $ 7,722,000Preferred StockDividends---------------------- 720,000 ---------------------Net Income for CommonStockholders$ 8,250,000 $ 7,530,000 $ 7,722,000Shares of CommonStockOutstanding7,820,000 7,500,000 7,500,000Earnings Per Share ofCommon Stock$ 1.05 $1.00 $ 1.03In this case issuing the common stock is the best alternative from the point of view of the common stockholders.15-5. Please calculate New River National B ank’s total risk weighted assets, based on the following items that the bank reported on its latest balance sheet. Does the bank appear to have a capital deficiency?The risk-weighted assets of New River National Bank would be calculated as follows:217Off-Balance-Sheet Items:Standby Credit Letters = $95 mill. * 1.00 = $95 mill.Long-Term Corporate Credit Commitments = $190 mill. * 0.50 = 95 mill.On-Balance-Sheet Items and Credit-Equivalent Off-Balance Sheet Items:Asset Items Risk-WeightCash $95 miIl. * 0 = 0U.S. Government Securities $320 mill. * 0 = 0Domestic Interbank Deposits $240 mill. * 0.20 = 48 mill.Standby Credit Letters $95 mill. * 0.20 = 19 mill.Residential Real Estate Loans $370 mill. * 0.50 = 185 mill.Commercial Loans $520 mill. * 100% = 520 mill.Long-Term Corporate CreditCommitments $95 mill. * 1.00 = 95 mill.Total Risk-Weighted Assets = $867 mill.Willow River's overall capital-to-assets ratio is:Total Capital = $105 million = 0.1211 or 12.11 percent Total Risk-Weighted Assets $867 millionOverall, it does not appear from the information given above that Willow River has a capital deficiency.15-6. Suppose that New River National Bank whose balance sheet is given in problem 5, reports the forms of capital shown in the following table as of the date of its latest financial statement. What is the total dollar volume of the bank’s Tier 1 capital? Tier 2 capital? According to the data given in problems 5 and 6, does New River have a capital deficiency?New River National Bank has the following Tier 1 and Tier 2 Capital items and totals:Tier 1 Capital Tier 2 Capital Common Stock (Par) $8 million Allowance for Loan Loss $25 million Surplus $17 million Subordinated Debt Capital $15 million Undivided Profit $35 million Intermediate Term Preferred Stock $5 million Total Tier 1 Capital $60 million Total Tier 2 Capital $45 millionTier 1 Capital = $60 million = 0..0692 or 6.92 percent Total Risk-Weighted Assets $867 millionThis bank has sufficient Tier 1 capital and since its Tier 2 capital amount is less than its Tier 1 capital amount it satisfies the requirements of Basel I.21815-7. Please indicate which items appearing on the following inancial statements would be classified under the terms of the Basel Agreement as Tier 1 capital and Tier 2 capital.15-8. Under the terms of the Basel Agreement, what risk weights apply to the following on balance sheet and off balance sheet items?The items which would appear in the 0%, 20%, 50% and 100% risk weight categories are the following:219。

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A Dual (Large-Bank, Small-Bank) Set of Rules Problems Accompanying the Implementation of Basel II
2.4 Capital Management
MANAGING CAPITAL AND LINES OF BUSINESS
Functions of Bank Capital The Need for Leverage to Improve the Returns to Owners Regulatory Capital Adequacy Criteria and Concerns
2.3 The Basel Agreement on International Capital Standards Basel I
DEPOSITORY INSTITUTION FAILURES AND CAPITAL
2.1 Brief introduction to Capital
Types of capital in use
1. Common stock 2. Preferred stock 3. Surplus 4. Undivided profits 5. Equity reserves 6. Subordinated debentures 7. Minority interest in consolidated subsidiaries 8. Equity commitment notes
2.3 The Baseபைடு நூலகம் Agreement on International Capital Standards
Basel II: A New Capital Accord Unfolding
Why Basel II Appears to Be Needed
Pillars of Basel II
Capital Requirements Attached to Derivatives Bank Capital Standards and Market Risk Value at Risk (VαR) Models Responding to Market Risk Limitations and Challenges of VαR and Internal Modeling
Chapter 2
The Management of Capital
2.1 Brief introduction to Capital
Definition of bank capital
EQUITY LONG-TERM DEBT RESERVES
2.1 Brief introduction to Capital Role of bank capital
1. Minimum capital requirements for each bank are based on its own estimated risk exposure from credit, market, and operational risks. 2. Supervisory review of each bank’s risk-assessment procedures and the adequacy of its capital will be done to ensure they are “reasonable.” 3. Greater public disclosure of each bank’s true financial condition so that market discipline can become a powerful force compelling excessively risky banks to lower their risk exposure.
2.2 Determining Capital Adequacy Understanding the components of bank capital
Core Capital = Equity Capital-Goodwill
Supplementary Capital
2.2 Determining Capital Adequacy Determining capital adequacy
Capital Allocation Capital Required Revenues Generated and Funds Use Overhead Consumed Capital Management
THANK YOU
2.3 The Basel Agreement on International Capital Standards
Internal Risk Assessment Operational Risk Basel II and Credit Risk Models
2.3 The Basel Agreement on International Capital Standards