Commercial

Commercial

Commercial

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David Jaggi

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David Jaggi

About these flashcards

This flashcard set covers advanced financial concepts at the university level, focusing on commercial banking metrics like income, assets, and capital. It delves into key financial ratios, risk assessments, and regulatory frameworks such as CAMELS ratings, equity, and loan analysis. The set is particularly useful for finance students and professionals seeking to understand commercial banking operations, financial statement analysis, and risk management.

Flashcards

45

Students

1

Language

English

Category

Finance

Level

University

Created / Updated

08.12.2017 / 09.12.2017

CAMELS Weight

25/20/25/10/10/10

Risk Category 1

Minimum: 5, Maximum 9

Risk Category 2

14

Risk Category 3

23

Risk Categroy 4

35

CET 1 capital required

4.5%

Tier 1 Capital Required

6%

Total Capital Required

8%

Conservation Buffer

2.5%

Countercyclical buffer range

0 - 2.5%

Best efforts

With best efforts underwriting, investment bankers act as agents ona fee basis related to their success in placing the issue with investors.

Firm Commitment underwriting

In firm commitment underwriting, the investment bank acts as a principal, purchasing the securities from the issuer at one price and seeking to place them with public investors at a slightly higher price.

Overhead efficiency

Non-interest income / non-interest expenses

Tier I Leverage ratio

(0.056)

Loans past due 30-89 days/gross assets

0.575

nonperforming assets/gross assets

1.074

Net loan charge-offs/gross assets

1.210

Net income before taxes/risk-weighted assets

(0.764)

Adjusted brokered deposit ratio

0.065

Weighted average camels component rating

1.095

Name the CAMELS?

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Capital adequacy, Asset quality, Management quality, Earnings quality, Liquidity, Sensitivity to market risk

Capital Adequacy

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Risk-based capital requirements are now used. The regulators also evaluate the bank’s loss experience, amount of problem assets in relation to capital, and the institution’s access to capital.

Asset Quality

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Banks are required to classify assets according to soundness and to allocate loss reserves based on their evaluation of the quality of their assets.

Management Quality

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The technical competence of management, their history of compliance, adequacy of internal controls, compensation and experience

Earnings quality

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Stability and growth rate of earnings, peer group comparisons of profitability and interest rate risk exposure

Liquidity

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Turnover rates of the bank’s sources of funds, particularly deposit turnover, - Percentage of core deposits versus “hot money” sources, the amount of loan commitments, and the volume of liquid assets held by the bank

Sensitivity to market risk

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Exposure of earnings and capital to changes in interest rates, foreign exchange rates, and commodity or equity prices

Camels Rating

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1 to 5 with 1 basically sound and 5 near-term probability of default

Equity

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preferred and common stock, surplus or additional paid in capital, retained earnings

Off-balance-sheet

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Off-balance-sheet items are contingent assets and liabilities that may affect a commercial bank’s balance sheet and/or income statement

Net interest income

Interest income- interest expenses

Net noninterest income

Noninterest income - noninterest expenses (Fees and Provision)

Financial Statement Analysis

Time series analysis, Cross-sectional analysis

Return on equity (ROE)

Net income / total equity = ROA x EM

Return on assets (ROA)

Net income / total assets

Equity Multiplier (EM)

Total assets / total equity

Profit Margin (PM)

Net income / total operating income

Asset utilization (AU)

total operating income / total assets

Interest expense ration

interest expense / total operating income

Provision for loan loss ratio

Provision for loan losses / total operating income

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nonperforming assets/gross assets

1.074

Net loan charge-offs/gross assets

1.210

Net income before taxes/risk-weighted assets

(0.764)

Adjusted brokered deposit ratio

0.065

Weighted average camels component rating

1.095

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