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Flashcards in capital/ consumer affairs /DeNovo /earnings Deck (54)
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Tier 2 Capital

Tier 2 = supplementary Capital + ALLL (subject to limitation of 1.25% of RWA) + perpetual preferred stock + unrealized gains on AFS equity securities + other tier 2 capital components


Tier 1 Capital

common stock + surplus + retained earnings + AOCI +Other equity capital (treasury stk and employee stock ownership plan shares) + minority interest in consolidated subsidiaries - Net unrealized gains/losses on AFS securities - Net unrealized loss on AFS EQUITY securities - Cumulative perpetual preferred stk + noncontrolling minority interest in consol subs - disallowed goodwill, servicing assets and deferred tax assets + disallowed credit enhancing interest only strips


Tier 1 Risk-Based Capital Ratio

Tier 1 Capital / Risk Weighted Assets Min Amount is 4%


Total Risk-Based Capital Ratio

Total Capital / Risk Weighted Assets Min Amount is 8%


Tier 1 Leverage Ratio

Tier 1 Capital / Average Total Assets Min Amount is 3%


Capital Restoration

if capital falls to undercapitalized level, bank must submit written capital restoration plans with the FRB within 45 days of the date the bank receives notice of being undercaptialized.


3 Primary consideration in evaluating the Capital rating

1. asset quality 2. earning 3. growth prospects


Risk based capital measures what kind of risk?

Credit Risk - off balance sheet


How can management increase capital levels?

Invest in assets that carry a lower risk weight


Capital purpose

1. absorb losses after earnings 2. promote public confidence 3. give mgmt ability to adjust to changing environment 4. provide measure of protection for the FDIC insurance fund


Leverage Ratio

Readily available to absorb losses. Does not take into account the risk profile


Risk-Based Capital

addresses the credit risk in different assets and takes into account off-balance sheet items


Section 5199 - Dividend Restrictions

Cannot declare until: surplus fund is equal to common captial, at least 10% of NI of preceding half year or year carried into surplus.


Section 208.5 of Reg H - Dividends and Other distributions

May not declare: if total of all dividends declared and proposed exceeds NI for the current calender year and retained NI of prior two years; if dividends exceed undivided profits, unless approved by BOG and 2/3 shareholders May not permit any portion of permenant capital to be withdrawn, unless approved by board and 2/3 of shareholders


Tier 3 Capital

Applies to only banks subject to market risk capital guidelines


What to look at in Asset Growth Rate?

Look @ change in risk weighted assets


Risk-weight Asset Categories

0%: Cash, Due From Federal Reserve, Gov't and Agency Securities, Fed Stock 20%: Cash in process of collection, Due from banks, General obligations, Gov't sponsored agency securities 50%: Loans secured by 1-4 Residential property, Revenue Bonds 100%: Industrial bonds, ORE, Fixed assets, All other loans, all stripped MBS, and corporate stock


Components of Compliance Risk Mgmt Rating

1. Board/Sr Mgmt Oversight 2. Consumer Compliance Program Structure 3. Policies and Procedures 4. Compliance Audits/Reviews 5. Internal Controls 6. Training RATING SCALE is 1 to 5


Components of Consumer Affairs Supervision

1. Risk-focused compliance exam (compliance risk profile / compliance risk mgmt rating/risk-focused exams . Monitoring . Outreach) 2. Fair Lending Exam (compliance ratings from 1 to 5) 3. CRA exam (rating outstanding to non-compliance)


Key characteristic used in evaluating products on a CA exam

product materiality


Only rating mandated by law

CRA (rating is not numerical, as are others)


5 criteria used to evaluate a small bank's CRA rating

1. loan/deposit ratio 2. loans in assessment area 3.borrower characteristics 4. geographic distribution 5. complaint resolution


Large Bank Exam procedures - 3 Tests

1. lending test 2. investment test 3. service test


CRA Laws and Regs

Reg B = ECOA and Fair Housing Act; Reg C = HMDA; Reg Z = truth in lending; Reg H = flood disaster; Reg X = RESPA; Reg DD = Truth in Savings; Reg CC = Expedited Funds Availability; Reg E = Electronic Funds Transfer


2 primary laws that deal with Fair lending

Reg B ; Fair housing act


Fair Housing

prohibits discrimination on familial status (kids, etc) and handicap



prohibits discrimination on age, marital status, receipiant of gov assistance


Reg Z

Truth in Lending - open-end/closed-end loans for personal, family, household purposes; $50,000 and under if not secured by RE. Disclosure: APR, finance charges, variable rate terms, prepymt restrictions. Other Provisions: right of rescission (3 days), credit advertisements, credit card liability limitation ($50)


Right of Recission

Doesn’t apply for loans used to purchase primary residence. Applicable only to subsequent refinance or home equity loan


Reg C

Home Mortgage Disclosure Act - certain banks (located in MSA and TA >=$41MM of previous yr) must collect and report data on home mortgage purchase, refi, improvement loans