11.5: Other Factors

Question 1

In addition to the CAMELS approach to analyzing bank, other factors that analysts should consider include the following:

Answer 1

Government Support
Government Ownership
Bank Mission
Culture

Question 2

Culture evaluation can be conducted by a review of:

Answer 2

Diversity of a bank’s assets.
Accounting restatements due to failures of internal controls pertaining to financial reporting.
Management compensation.
Speed with which a bank adjusts its loan loss provisions relative to actual loss behavior.

Question 3

Apart from these factors, there are general factors that are relevant to analysis of any company (not just banks). These include:

Answer 3

• A competitive environment affects a bank’s culture and risk-taking behavior.
• Off-balance-sheet assets and/or liabilities may seriously affect an entity if the underlying risks turn out to be larger than the available resources.
  – Segment information may provide insights into different lines of business or different geographical markets that the bank operates in.
  – Currency exposure is significant for large, global banks trading in currencies or holding significant assets or liabilities in different currencies whose values fluctuate.