Of the most important aspects of this shift has been

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of the most important aspects of this shift has been an increased emphasis on capital adequacy standards, with improved methods of assessing the overall level of risk inherent in a financial institution’s asset holdings. The purpose of this exercise is to examine how well capitalized some of the more well-known commercial banks are relative to the tier-one and tier-two capital requirements described in this chapter. a. Choose three commercial banks that differ by asset size. Go to the Federal Reserve Board’s web site: and click on the Institution Search tab. For each bank enter the name of the commercial bank (for example, Citicorp) and begin the search. (Note: if more than one bank has the same name, be sure to choose the parent company.) This will direct you to a page where you can choose either: the Bank Holding Company Performance Report (BHCPR) or the Consolidated Financial Statement for BHCs (FRY-97). The data you seek is contained in both reports. On the BHCPR you can find the information on the table entitled: Risk-Based Capital. On the FRY-97 you can find it on Schedule HC- R-Regulatory Capital. Using either report find: (i) Total assets; (ii) Total risk-weighted assets; (iii) the Tier 1 risk-based capital ratio; and (iv)the Total risk-based capital ratio. Load these data into a spreadsheet for each of the three banks over each of the past five years. Answer: The result show in spreadsheet below: Dollar Amounts in Thousands Total Assets Total risk- weighted assets Tier 1 risk-based capital ratio Total risk-based capital ratio Citigroup Inc. 12/31/2003 1,264,032,000.00 750,293,000.00 8.91 12.04 12/31/2004 1,484,101,000.00 851,563,200.00 8.74 11.85 12/31/2005 1,494,037,000.00 885,472,000.00 8.79 12.02 3/31/2006 1,586,201,000.00 929,553,300.00 8.60 11.80 3/31/2007 2,020,966,000.00 1,106,961,000.00 8.26 11.48 SUNTRUST BANKS, INC. 12/31/2003 125,393,153.00 113,711,349.00 7.85 11.75 12/31/2004 158,869,784.00 136,642,790.00 7.16 10.36 12/31/2005 179,712,841.00 158,132,292.00 7.01 10.57 3/31/2006 178,876,476.00 156,044,502.00 7.26 10.88 3/31/2007 186,384,841.00 163,773,953.00 7.60 10.94 BB&T CORPORATION 12/31/2003 90,466,613.00 65,511,840.00 9.41 12.53 12/31/2004 100,508,641.00 72,675,079.00 9.19 14.55 12/31/2005 109,169,759.00 80,390,559.00 9.27 14.44 3/31/2006 110,033,689.00 81,623,098.00 9.02 13.99 3/31/2007 121,694,315.00 92,192,088.00 8.66 13.87 17-12
Chapter 17 - Regulation of the Financial Institutions’ Sector b. How well were these firms meeting the capital adequacy standards in the most recent year for which data are available?
c. How much did the risk-adjustment to the assets lower their Tier 1 and Tier 2 capital ratios (i.e., what would those ratios have been without the risk adjustment)?
d. Which of these banks have become better capitalized and which have seen their capital adequacy position decrease recently? What might have caused these changes?

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