Commercial Banks-Industry Overview- From SC3-Chapters 11&13 part3

Commercial Banks-Industry Overview- From SC3-Chapters 11&13 part3

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3/17/11 Some Simple Benchmarks The Taylor Monetary Policy Rule: where i denotes the targeted short-term nominal interest rate denotes the current inflation rate π r* denotes the equilibrium real Fed Funds Rate y denotes the log of actual and potential (as determined by a linear trend) Real GDP ) ( ) ( _ * * t t y t t t t t y y a a r i - + - + + = π inflation gap output gap target rate potential RGDP
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3/17/11 Some Simple Benchmarks The Taylor Monetary Policy Rule: Taylor assumes that the equilibrium real FED Funds Rate is 2% Taylor also assumes that the target rate of inflation is 2%.
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3/17/11 Monetary Policy Key Feature is the Monetary Policy Lag estimated to be between 9 months and 1.5 years compare to estimated fiscal policy lag of 12 months to 5 years Requires intermediate and short-term targets to monitor progress
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3/17/11 Deposit Insurance
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3/17/11 Risk Based Deposit Insurance Deposit Insurance Premiums are based on Bank’s Risk Rating Bank’s capitalization
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3/17/11 Risk Categories determined by CAMELS rating capital adequacy asset quality management quality earnings liquidity interest rate sensitivity Rating in each category
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3/17/11 Risk Categories Depending on the bank’s risk rating it is placed in one of three categories Risk Category B : CAMELS Rating = 3 Risk Category C : CAMELS Rating =4 & 5
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3/17/11 Minimum Capital Requirements across Capital Categories *Total Capital = Tier 1 + Tier 2 Capital
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Commercial Banks-Industry Overview- From SC3-Chapters 11&13 part3

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