Details Title: Commercial Banking test 2 Description: fuck me Total Flash Cards: 93 Created: 03/11/2009 19:58:37		New Users: To study from this flashcard set, or to create your own your own study flash cards, REGISTER HERE. Existing Users: CLICK HERE. Additional Finance Flashcards
Cards in this set: Term definition of bank capital Definition equity long term debt reserves Term capital management Definition "reserves: Term equit in capital management Definition common stock, PS, surplus, unidvided profits=BV equity MV equity Term LT debt in capital management Definition subordinate notes and debentures interest payments are tax deductible Term reserves in capital management Definition PLL is expensed on the income statement RLL is a captial account on the right hand side of the BS Term roles of bank capital Definition source of funds cushion to absorb unexpected operating losses adequate capital Term cushion: long term debt can only Definition absorb losses in the even of institutional failure Term regulatory requirment Definition promote bank safety and soundness Term adequate capital Definition regulatiory requirements promote bank safety and soundness mitigate moral hazard by increasing shareholder exposure to bank operating losses market confidence Term bank regulators are concerned abou Definition safety and soundness Term bank shareholders concerned about Definition avg return or long run Term regulator perceive that financial risk increases Definition the probability of insolvency as greater variablity of earnings makes it more likely that negative earnings could eliminate bank capital Term close banks due Definition to capital impairment Term excessive capital regulation Definition inhibit competitiveness and efficiency of the system Term capital standards to measure adequacy Definition OCC uses capital deposit rate 1900's Fed resv in 1950's classified assets into 6 different risk cat OCC moved to subjective system in the 1960's Term early 1900's OCC capital standards Definition capital deposit rate motivated by fears of bank runs Term Fed res uses 1950's Definition FABC form for analyzing bank capital 6 risk types Term OCC switched to in the 1960's Definition subjective system of captial evaluation Term subjective system of capital evaluation Definition OCC 1960 management quality asset liquidity operating expenses deposit compostition Term problem with early capital standards Definition different standards by dif regulators OCC FRB FDIC not enforceable by law until International lending act 1983 fairness was questionable with smaller banks Term what made capital standards enforacble by law Definition international lending act of 1983 Term minimum primary capital to asset ration created Definition in 1981 by three federal bank regulators 5-6% Term becuase of the first min cap to asset ratio large banks Definition increased their risk taking Term basel agreement Definition risk based capital requirements 1988 12 industiralized nations Term what was the basel agreement under Definition bank of international settlements Term what is the basel like Definition the fed approach the FABC but it has 4 catagorizes of risk Term amendment to basel Definition 1988 include rules to securites trading banks Term basel has Definition 2 teir 1. core capital 2. supplemental capital Term core capital Definition teir 1 basel equity Term supplemental cappital Definition teir 2 basel LT debt and reserves Term total capital Definition teir 1 + 2 Term allowance for loan Definition reserves tier 2 Term asset credit risk Definition A1 A2 A3 A4 Term A1 Definition cash us govt sec Term A2 Definition mortgage backed bonds and govt obligations GO muni bonds Term A3 Definition home loans and muni rev bonds Term A4 Definition bus consumer and other loans other securities and bank premises Term market risk is the reason Definition more doing derivitive and securitized speculating derivities Term market risk capital requirements Definition jan 1998 10% of total assets or 1billion in trading account posisiton 8% risk adjusted capital requirement on a daily basis based on market to market values added to credit risk weighted assets or risk adjusted assets after removing these securities from previous Term previous risk adjusted asset - + Definition -GO munies trading account sec. ($1500x.2) +VAR over the last 60 days =Risk adj assets with market risk capital requirements Term Stress test Definition on VAR models by using assumptions allow VAR models to continuously update Term sec held to maturity Definition book value Term sec held to sale Definition market to market Term general market risk Definition financial market as a whole Term VAR Definition on the `10day 99th percentile Term VAR x Definition scale factor usually 3 Term for general market risk and VAR must use Definition and average VAR over the last 60 days x 3 the previous VAR (if volatile) Term specific risk Definition other risk factors including credit risk of the securites issuer and liquidity risk Term scaling factor for specific risk Definition 4 Term add specific risk to Definition risk adjusted assets Term Basel 1 replaced with Definition Basel 2 that has more risk sensitive framework Term basel 1 focus Definition single measure one size fits all broad brush approach Term basel 2 focus Definition emphasis on banks own internal risk models, supervisory review, and market disipline flexibility- incentives for better risk managemnet more risk sensitivity Term basel 2 three pilars Definition 1. min capital requirement is done on an internal basis 2. more supervisory review 3. market disipline- banks will required to increase info disclosure a measurement of credit and operatinoal risk Term basel 2 pilar 1 capital requirement Definition total capital >8% / credit risk + market risk + operational risk Term basel 2 credit risk Definition standardized approach based on external credit ratings when avalible -advanced internal risk based IRB approach Term basel 2 maket risk Definition standardized approach internal models approach Term basel 2 operational risk Definition basic indicator approach standardized approach internal measurment approach Term weakness of basel 2 Definition capital adequacy Term problem basel 2 Definition -reg requirments may change banks behavior in terms of allocation of loanable funds and investment decisions and possibly channel savings to less than the best uses ---port diversification is not taken into account Term why is FDIC in bank capital adequacy Definition its deposit insurance activites Term FDIC handling distressed banks Definition 1. depositor payoff (liquidation) 2. purchase and assumption chop and merge 3. provision for financial aid 4. charter of a deposit insurance national bank DINM or bridge bank --> Term bridge bank Definition govt takes over then merges Term variable rate deposit insurance Definition A B C well cap 0 3 17 adequate 3 10 24 under 10 24 27 per $100 Term MM said Definition firm value goes up as co uses debt Vl=Vd+tD Term corporate control Definition fewer shares dont have alot of agency prob Term what increases corporate control of the bank Definition greater debt increases the concentration of ownership among shareholders and increases corp control of bank Term agency cost Definition for banks not closely held Term hostile takeover Definition for banks with undervalued shares Term preemptive rights of shareholders reduces Definition dilution and reduces agency cost to the extent that owner concentration is increased Term asset investment consideration Definition asset risk and capital needs to absorb potential loss Term M and A Definition financial services mondernization act 1999 Term internal expansion Definition Internal capital generation rate ICR rate bank can expand its assets and still maintain its capital ratio Term estimating liquidity needs Definition sources and uses of funds method structure of deposits method funding and market liquidity needs SSF Term sources and usues of funds method Definition est loans est deposits change loands change dep estimated liquidity needs Term structure of deposit method Definition short term (unstable) demand dep, other trans medium term: small time and saving dep long term (stable):large time dep, expected dep withdrawls Term funding and market liquidity needs Definition funding liquidity maintaining sufficient cash to meet lending and securities invesment needs market liquidity risk : market disruptions that can widen the bid ask spreads and make hard to close out open positions in derivites sec with out losses Term asset liquidity Definition are an alternative source of funds a reserve to protect bank from financial market loss of confidence that could threaten safety and soundness Term primary reserve Definition vault cash and cash held on deposit at fed res Term secondary reserves Definition money market instruments held by the bank under no formal regulatory requirment Term primary reserves lagged reserve requirments Definition avg balance of transaction during 14 day period daily vault cash in 14 day period skip 3 days maintain reserve balance during a subsequent 14 day (maintenacne period) 17 days between end of comp period and beg of maintenance period -lowers management costs -improves the quality of info on required balances Term managing the money position Definition minimize cash holdings mean to meet reserve requirements Term secondary reserves Definition t bill, fed agency securites, repurchase aggreement, bankers acceptances, negotiable certificates of deop, fed funds, commercial paper Term secondary reserves aggressive liquidity approach Definition yield curve relationship buy longer tern or short term sec Term secondary reserves securitization of loans Definition asset backed financing loans converted into securities with greater liquidity credit risk reduced Term liability managment of liquidity mgmt Definition purchase the funds needed to meet loan demands and deposit withdrawals Term liability liquidty managment Definition as interest rates rise -- reduce interest rate margins Term aggressive liability liquidity managment to implent Definition a bond carry trade strategy can result in losses Term capital losses on securites and assets can occur under liability mgmt Definition interest rates rise Term loss of public confidence Definition would prevent the bank from rolling over purchased fund Term capital market risk Definition interest rates are low and investors shift funds from deposits to higher earning capital assets in the in the financial market place Term interest rates go up margin Definition goes down Term optimum bank liquidity Definition high enough liquidity to meet unepected needs but not so hight to incure opportunity cost of near cash assets