R.17 - Analysis of Financial Institutions

Question 1

What is the CAMELS approach to bank rating and analysis?

Answer 1

A numerical rating between 1 and 5 is given for each component. 1 represents the best rating. A composite rating for the bank is a weighted average (determined by party doing assessment) of the component ratings, with the weights determined by the particular examiner.

• equity investors would care about earning quality and sustainability.
• fixed income investors and regulators would be concerns with liquidity and capital adequacy.

Question 2

What are other factors (in addition to CAMELS) relevant to bank analysis?

Answer 2

Question 3

What is Basel III?

Answer 3

The Basel Committee on Banking Supervision was established in 1974.

• Members: many countries; include central banks and regulators
• Established the international regulatory framework for banks, known as Basel III. Key components of Basel III are:

1. Minimum capital requirements – based on risk-weighted assets
2. Minimum liquidity – enough to handle a 30-day liquidity stress scenario
3. Stable funding – to cover needs over a one-year horizon. This is based on the length of the deposits and the type of depositor.

Question 4

Property & Casuality Insurance profitability ratios

• Loss and loss adjustment expense ratio
• Underwriting expense ratio
• Combined ratio
• Dividends to policyholders ratio
• Combined ratio after dividends

Answer 4