Capital Flashcards by Luis Hernandez

Capital rating?

Critically deficient capital

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What are the requirements to be exempt from HVCRE?

1-4 family residential projects

Loans secured by properties for ag purposes

Community Development Loans

ADC loans at or below supervisory limits and the borrower has contributed 15% or more of “as completed” value in cash or unencumbered readily marketable assets, and the borrower capital is contractually required to remain throughout the project life.

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When must a CRP be filed?

Within 45 days of the institution becoming UC

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What should a CRP entail?

SLOTH

Steps the bank will take to become AC

Levels of capital to be attained during each year the CRP is in effect

Other information as required by the federal regulator

Types and levels of activities in which the bank will engage, and

How the bank will comply with the restrictions in effect under PCA.

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Capital rating?

Viability may be threatened

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Performance SBLC have a CCF of?

50%

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Ratios for UC?

Leverage:

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Capital rating?

Deficient capital

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Requirements for statutory MF?

Made with prudent underwriting standards

Max LTV 80% (75% if adjustable int rate) based on the lower of the acquisition cost or appraised value

Paid on time for 1 year

Max amortization of 30 years; min maturity not less than 7 years

DSC of property before loan payment of 1.2x (1.15x if adjustable int rate)

Not 90 days PD of NA.

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MSAs, DTAs arising from temp differences that the bank couldn’t realize through NOL carrybacks, and significant investments are RW at?

Items not deducted from capital are RW at 250%.

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Commitments with an original maturity of 1 year or less that aren’t unconditionally cancelable have a CCF of?

20%

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What kind of minority interests are only includable in CET1C?

Only includable in CET1C if the investment is in a depository institution.

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What is the definition of non-significant investments in the capital of unconsolidated FI? Significant investments?

Non-significant investments = if bank owns 10 percent or less of the other institution’s common shares

Significant investments = if bank owns more than 10 percent of the other institution’s common shares

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Capital 1?

Strong Capital

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What is an estimated loss?

Where is this loss deducted from in Capital?

Probable and estimated

Estimated loss should be recognized if it’s probable that an asset has been impaired or a liability has been incurred as of the exam date, and the amount of the loss can be reasonably estimated.

Deducted from CET1C in “other adjustments to CET1 capital”

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What items does the capital conservation buffer restrict?

Dividends

Discretionary payments on T1 instruments

Share Buybacks

Exec Officer Bonuses

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Capital rating?

needs improvement even though capital levels exceeds min regulatory requirements

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Ratios for WC?

Leverage = 5%

CET1 RBC = 6.5%

T1RBC = 8%

TRBC = 10%

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Capital rating?

Immediate assistance is required

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What are some of the restrictions of being less than AC?

Need prior approval to expand

Must submit a CRP to the RD within 45 days of receiving notice

Condition of bank is required to be monitored by the FDIC

Restricted growth

Capital distributions are restricted

Management fees are restricted

What are the components of CET1?

Common Stock + related surplus net of treasury stock

+ Retained Earnings

+ AOCI

+ Qualifying CET1 minority interests

= CET1C Before Adjustments

Goodwill and other Intangibles
DTA arising from NOL and tax credit carryforwards
AOCI adjustments (if bank opts out)
Non-significant investments in the capital of unconsolidated FI that exceed 10% threshold for non-significant investments

= Subtotal of CET1C (used to determine threshold deductions)

Significant investments in the capital of unconsolidated FI that exceeds the 10% threshold deduction
MSR that exceed 10% threshold deduction
DTA arising from temporary differences that couldn’t be realized through NOL carrybacks exceeding 10% threshold
Aggregate amount of sig-investments, MSR, and DTA arising from temp differences that still exceed 15% CET1C

= CET1C

What is a loss contingency?

Existing condition involving uncertainty as to possible loss if/when future events occur (or fail to occur)

Ratios for AC?

Leverage = 4%

CET1 RBC = 4.5%

T1RBC = 6%

TRBC = 8%

Capital rating?

Less than satisfactory capital that does not fully support risk profile

What are the components of Tier 2 Capital?

Cumulative Preferred Stock and Subordinated Debt (includes bank-issued SBLF and TARP that currently qualify as T2C) + Allowable ALLL = T2C

When is an institution engaging in an Unsafe and Unsound practice pursuant to Section 8(b) or (c)?

When institution has Leverage capital less than AC and has not submitted or in compliance with a CRP approved by the FDIC to increase its Leverage Capital ratio

What are the methods and characteristics a bank can use to RW securitization exposures?

Simplified Supervisory Formula Approach (SSFA) - lower RWs to more senior class securities and higher RW to support tranches Gross-up Method - Weighted Avg RW. Capital required on the credit exposure of the bank's investment in the subordinate tranches, as well as its pro rate share of the more senior tranches it supports 1250%

How are DTAs treated for capital?

DTAs from NOL and tax credit carryforwards are fully deducted from Capital DTAs from temp differences that are realizable through carrybacks aren't deducted from capital DTAs from temp differences that are not realizable through carrybacks are subject to the 10%/15% CET 1 thresholds.

Unused commitments that are unconditionally cancellable by the bank have a CCF of?

Capital 2?

Satisfactory Capital

What are the 4 purposes of capital/

RAPP Restrict excessive asset growth Absorb losses Promotes public confidence Protects depositors and the DIF

What is a potential loss? Should this be documented in the ROE?

Contingent liability that have a substantial and material risk of loss Yes, amount is included in "Memo" section of the Capital Calculations page; not actually deducted from capital

What are the Capital Evaluation factors?

AAA BS OOPQ Ability to address emerging needs Asset growth Access to capital BS composition Strength of earnings and reasonableness of dividends Overall condition Off-Balance sheet items Problem assets and ALLL adequacy Quality of capital

Capital rating? Viability threatened

Requirements for a presold construction loan to be RW at 50%?

Purchaser is an individual that intends to occupy the property Min 3% earnest money deposit based on sales price and money held in escrow Builder incurs 10% of direct costs before loan draws downs Max LTV of 80% using sales price No more than 90 days PD or on NA.

Financial SBLC have a CCF of?

100%

Commitments with an original maturity exceeding 1 year that aren't unconditionally cancelable by the bank have a CCF of?

50%

What is a Category II contingent liability?

Bank faces a claim on assets; would reduce assets and cause a loss if it happens.

Capital rating? Assistance may be required

When is an institution operating in an unsafe and unsound condition?

When the T1C to TA ratio falls below 2% pursuant to section 8(a)

Ratios for CUC?

Tangible Equity/TA:

When can a bank be dropped from WC to AC?

An Unsafe or Unsound practice or condition exists Consent Order with a capital provision Subject to a written agreement

Ratios for SU?

Leverage:

What happens when a bank controlled by another company has a CRP?

Must obtain performance guaranty and assurance from that company that says the bank will comply with the CRP until they're in compliance with capital requirements for 4 consecutive quarters.

What is a Category I contingent liability?

Increases assets if it converts to actual liability.

What items are included in a Capital Directive?

Capital Ratio required to attain and maintain $ amount of capital required to raise Proposed date for achieving the min Capital Ratios requirement (not to exceed 180 days from issuance)

Requirements for a 1-4 SFR loan to be RW at 50%?

1st lien Made under prudent underwriting standards Not 90 days or more PD not on NA Not a TDR (unless HAMP)

What is an advanced approach institution?

Institution that has consolidated TA of $250B or more, or has on-balance sheet foreign exposure of $10B or more.

What are the components of additional Tier 1 Capital?

+ Non-cumulative PPS (including surplus) + plus SBLF and TARP (bank issued) + plus non-qualifying capital instruments subject to phase out + plus non-qualifying CET1 minority interest - less Certain investments in FIs - less Non-significant investments in additional T1C instruments of unconsolidated FI exceeding the 10% threshold - less Significant investments in the capital of unconsolidated FIs in the form of Additional T1C = Additional T1C