Growth
Name 2 of the 4 primary purposes of Capital.
Restricting excessive asset growth, absorbs losses, promotes public confidence, provides protection to depositors and the deposit insurance fund.
What rating would you give to a bank that had capital considered strong relative to its risk profile?
1
What are the 4 capital ratios used by regulatory agencies?
Tier 1 Leverage, Common Equity Tier 1 Risk-based, Tier 1 Risk-based, Total Risk-based
At what total average consolidated assets size does a bank no longer qualify for the CBLR framework?
$10 billion
At what percent would FHLB stock be risk weighted at?
20%
Name 1 way a bank can increase their capital ratios.
Either increase capital levels or reduce asset levels and/or growth.
What rating would you give to a bank whose capital was considered deficient and the bank's viability may be threatened?
4
5%
What PCA Category does the Total Capital Ratio have to be greater than to be considered “Well Capitalized”?
10%
What Call Report Schedule reports the Capital calculations, such as Common Equity Tier 1 Capital, Additional Tier 1 Capital, and Tier 2 Capital?
Schedule RC-R
Without raising additional capital, what is the best way for banks to fund asset growth?
Retained Earnings
True or False: If a bank has capital ratios above the regulatory minimums to be considered well-capitalized they are guaranteed to have either a 1 or 2 rating.
False
At what percentage of capital is a bank considered critically undercapitalized?
2%
What would loans-not-held for sale that have Junior Liens be risk weighted at?
100%
What is the highest risk-weight percentage that can be applied to either an on- or off-balance sheet item?
1,250%
What is the potential negative impact of reducing assets to improve capital ratios through selling short-term securities?
This may leave the bank with a strained liquidity position.
Which of the following is NOT an evaluation factor for evaluating the capital rating?
a. The nature, trend, and volume of problem assets, and the adequacy of allowances for loan and lease losses and other valuation reserves
b. Balance sheet composition, including the nature and amount of intangible assets, market risk, concentration risk, and risks associated with nontraditional activities.
c. The adequacy of provisions to maintain the allowance for loan and lease losses and other valuation allowance accounts.
d. The quality and strength of earnings, and the reasonableness of dividends.
c. The adequacy of provisions to maintain the allowance for loan and lease losses and other valuation allowance accounts.
At what Tier 1 Risk-based capital ratio is a bank considered "Under-capitalized"?
<6%
What call report schedule are off-balance sheet items reported?
Schedule RC-L
To calculate the Tier 1 Leverage Capital Ratio, what must you divide Tier 1 Capital by? Make sure to be specific
Adjusted average quarterly assets
What documents prepared by bank management will help examiners understand management's ability to plan for and manage growth?
The budget and the strategic plan
Which of the following IS an evaluation factor for rating capital?
a. The ability to securitize and sell certain pools of assets.
b. The degree of reliance on short-term volatile funding sources (including borrowings and brokered deposits), to fund longer-term assets.
c. The ability to provide for adequate capital through retained earnings.
d. Risk exposure represented by off-balance sheet activities.
d. Risk exposure represented by off-balance sheet activities.
At what Common Equity Tier 1 risk-based capital ratio is a bank considered "Adequately Capitalized"?
4.5%
How can a mutual institution increase its equity capital?
Income from operations and the sale of assets
Part 327.50 requires the Board to suspend dividends whenever the Deposit Insurance Fund (DIF) reserve ratio exceeds what percentage at the end of any year?
1.50%