Class%20#8%20461%20Structure%20change%20mine

Class%20#8%20461%20Structure%20change%20mine - Structural...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Structural Change in US Banking and Regulation
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Current Events Presentations TODAY: Uuganbayar Batkhuyag TUESDAY: Discuss Bank Project A Assignment: Text, Chapter 7 and Appendices 2A and 7A Bank Project Part A due today (or by noon Friday)
Background image of page 2
3 Class Outline 5. Bank examinations Regulatory foundations (disappearing?) Regulatory dialectic Banks are regulated. What is a bank? 4. The new banking structure
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Bank examinations Examinations are done once a year —required by law—and can take from a few days (small bank) to nearly all year (large bank). They are scheduled and are no longer surprise examinations. All of the different regulators use examination s to supervise DFIs. All federal bank regulators use a common approach to bank examination, the Uniform Interagency Bank Rating System—also called the CAMELS system.
Background image of page 4
5 CAMELS System Banks are evaluated and rated on six critical aspects of condition and operations. Five numerical ratings are used. 1 Strong —Significantly higher than average 2 Satisfactory —Average or above performance 3 Fair —Below average; flawed to some degree 4 Marginal —Significantly below average; may evolve into weakness to threaten viability 5 Unsatisfactory —Critically deficient; immediate remedial action is needed
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 The six rated areas (CAMELS) C apital adequacy —capital ratios; asset risks; ability to raise external capital A sset quality —performance of loans and securities; loan losses and reserves; documentation and payment performance of loans; monitoring activities M anagement —board of directors; internal controls; compliance with law and regulation E arnings —sufficient to provide a satisfactory return to shareholders and add to capital; quality of earnings L iquidity —amount of liquid assets; commitments to make loans; reliance on purchased sources of funds S ensitivity to market risk —how earnings and asset and liability values change with interest rate changes
Background image of page 6
7 Asset quality as an example An examiner will look at a sample of all loans— payment history, documentation of financial performance of the borrower, reports on collateral, monitoring over time, etc. Examiner may classify one or more loans as being unlikely to be repaid in full. Classification categories are: Substandard —bank must write off 20% of loan Doubtful —bank must write off 50% of loan Loss —bank must write off 100% of loan Studies suggest that examiners are reasonably accurate in identifying loans that experience less than full payback; that is, for example, loans classified as doubtful end up experiencing losses of about 50%.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 CAMELS ratings A rating of 1 (best) to 5 (worst) is given in each of these six areas. An overall or composite rating (1 to 5) is also given. Only whole numbers are used.
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/28/2011 for the course FIN 461 taught by Professor Morgan during the Fall '11 term at University of Illinois at Urbana–Champaign.

Page1 / 45

Class%20#8%20461%20Structure%20change%20mine - Structural...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online