All the god damned ratios+Capital rquirements Flashcards
Credit risk ratios
- PLL/average TA
- credit loss coverage (EBT+PLL)/PLL
- RLL/TA
- Net charge offs
Interpret PLL/TA
if its higher, you are either moving towards riskier loans, your loans are becoming riskier, or your management is more conservative
Interpret credit loss coverage
Ability to cover potential credit losses
Interpret RLL/TA
% of total assets that can be declared as uncollectible without reducing income
Net charge offs
how much of their loans does an FI write off
Ratios to assess capital adequacy
equity/TA
TA/equity
measuring liquidity risk ratios
- (cash+short term sec)/TA
- Net loans/deposits
- Purchased liabilities/TA
- Interbank ratio, Could also be FF ratio i guess
Use total assets not average total assets, its to measure risk at specific point in time
explain (cash+short term sec)/TA
how many of your total assets are liquid assets, the higher the better (in terms of liquidity)
Net loans/deposits
How much of the deposits are tied up in loans, unavailbale to withdraw, when it’s over 1, its a bad sign
Purchased liablities/TA
the higher, the worse, it means you are borrowing a lot in the money market to make loans since your core deposits are not sufficient
interbank ratio
higher the better, its Interbank loans/IB debt, c a quel point tu loan a ceux qui sont dans marde comparé à à quel point tu borrow dans le marché qui te sort du pétrin
What the financing gap
on the sheet, its essentially loans minus deposits, the difference means that these are loans you made with
short term borrowed money (because core funding is core deposits and permanent liabilities and equity)
Explain the financing requirement
the gap is your loans minus core funding. This gap is money you lend which doesn’t come from core funding, adding reserves to this gives you the total of the money you are purchasing in the money market to meet your liquidity needs, the higher the worse.
Finance companies profitability ratios
-NIM
- avg monthly collections/avg monthly receivables
- oper exp/avg receivables
- finance profit/avg receivables
- Finance rev/avg receivables
- ROE
- EM
- PM
Common ratios for insurance
-NUM(net underwriting margin)
- loss ratio
- expense ratio
- combined ratio
- overall profitability
- ROE/ROA/EM/AU/PM
how’s the overall profitability of insurers determined?
Combine ratio -investment yield, if the number is below 100%, then it is profitable
Profitability ratios of investment banks and securities firms
the ones under insurance on the sheet:
Principal transaction revenues/Total revenues
Investment banking revenues/Total revenues
Portfolio revenues/ Total revenues
- Total Revenues/Total expenses
- ROE/ROA/EM/AU/PM
What is the MER (he forgot it on the goddamn sheet)
Management expense ratio: total of management fees, operating expenses and taxes
Management expenses/net assets
What does the Basel accord state, what are the two types of regulated capital
Financial institutions must have at least enough capital to cover potential losses in case of default
- tier I and II capital
Tier 1 capital, and how much of the risk weighed assets it must be higher or equal to
- common shares
- Retained earnings
- Non-callable preferred stock
- Mut be equal or more than 6% of RWA
Tier 2 capital, and how much Tier 2 plus tier 1 must represent in terms of RWA
- debt
- convertible debt
- callable preferred stock
- reserves for LL
Tier 1 +2 higher or equal to 10% RWA
HOw to compute RWA, what are the weights
- 0,2*interbank deposits, ff, repo, bref tt ce qui est short term money market, petit weight pcq cvrm pas risqué
- 0.5*mortgages (quand meme risky)
- 1*all other claims: CP, commercial loans, always the most risky
cash et tbills a 0 parce que aucun risque
