11.2: Capital Adequacy and Asset Quality

Question 1

CAMELS

Answer 1

capital adequacy
asset quality
management
earnings
liquidity
sensitivity

Question 2

Tier 1 Capital:

Answer 2

a - Common Equity Tier 1 capital : Common stock, additional paid-in capital, retained earnings, and OCI less intangibles and deferred tax assets.
b - Other Tier 1 capital: subordinated instruments with no specified maturity and no contractual dividends

Question 3

Tier 2 capital

Answer 3

Subordinated instruments with original (i.e., when issued) maturity of more than five years.

Question 4

Basel III guidelines specify a minimum Common Equity Tier 1 capital of

Answer 4

4.5% of RWA,

Question 5

Basel III guidelines specify minimum total Tier 1 capital of

Answer 5

6% of RWA

Question 6

Basel III guidelines specify a minimum total capital of

Answer 6

8% of RWA.

Question 7

Asset Quality

Answer 7

processes of generating assets, managing them, and controlling overall risk

Question 8

Credit Risk Analysis

Answer 8

key insights into the bank’s solvency and future profitability.

Question 9

Allowance for loan losses

Answer 9

contra asset account to loans and is the result of provision for loan losses

Question 10

Several ratios are useful in this evaluation:

Answer 10

1- Ratio of allowance for loan losses to non-performing loans.
2 - Ratio of allowance for loan losses to net loan charge-offs.
3 - Ratio of provision for loan losses to net loan charge-offs.