liabilities 100 420 FDIC pays the 250 million in insured deposits

Liabilities 100 420 fdic pays the 250 million in

This preview shows page 3 - 5 out of 10 pages.

liabilities = 100 + 250 + 50 + 20 = 420 FDIC pays the 250 million in insured deposits, becomes a 250 million creditor to the bank. The assets are liquidated for 380 million, with creditors paid off at 380/420 = 0.9048. The FDIC receives 250*0.9048 = 226.19 million, so pays 23.81 million on the liquidation. This money comes from banks that pay into the fund - any with deposits. Overall, the loss is borne by the bank’s uninsured creditors (the FDIC, those holding Fed Funds sold by the bank, equity holders) and by the other insured banks. B. Read “Continental Bank Is Seeking To Switch…” (19.5), “U.S. Seeks To Loosen Bank Rules” (19.6) and “Evaluating The Centralized-Layers Approach To Us Federal Financial Regulation” (19.3) and answer the following questions: i. Why do you think Continental was seeking to switch regulators? What are the reasons suggested in the article? Which do you believe? Continental was seeking to become a state-chartered bank regulated by the federal reserve rather than by the comptroller of the currency. The article suggests that switching will save Continental between $1 and $2 million a year in examination fees (as the Fed already regulates the holding company as a member of the federal reserve system), and that Continental has had “clashes” with the comptroller over reserve levels - as many banks have been able to reduce reserves, Continental had to raise them due to its exposure to the still-depressed California real estate market. The Fed is also seen as a more consistent regulator, whereas the comptroller switches between being strict and lenient. Continental was also bothered by the refusal of the comptroller to grant it permission to set up a triple-a rated subsidiary to engage in derivatives activities. I would say that Continental is shopping around for regulators that will let it do what it wants at the lowest prices. Since regulators’ budgets and prestige depend on how many banks they regulate, they have incentive to appeal. In Continental’s case, setting up a triple-a subsidiary to engage in derivatives activities was probably a high priority. Reasons suggested: save money by having Fed regulate both couldn’t set up AAA subsidiary for derivatives wanted to get away with lower reserve requirements ii. What were the changes the OCC subsequently proposed? The OCC changes erode the Dodd-Frank rules that prohibit federally- chartered banks from trading securities by allowing commercial banks to set
Image of page 3

Subscribe to view the full document.

up subsidiaries that can undertake any activity “incidental to or within the business of banking”. While banks were previously allowed to set up subsidiaries for trading securities, they had to be legally separate from the bank, whereas banks could own up to 51% of the new subsidiaries. How much to set aside for troubled loans (loan loss, reserves increase) - Latest erosion of the Glass-Steagall Act which barred commercial banks from trading securities for 61 years.
Image of page 4
Image of page 5

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes