securities Flashcards
UBPR pg 6
Securites Breakdown
UBPR pg 10
Composition of securities portfolio
Investment-quality security w/ temporary impairment
Pass
Investment-quality security w/ OTTI
Classify Loss
Sub-investment grade security w/OTTI
Classify fair value substandard and impairment Loss
Sub-investment grade security w/temporary impairment
Classify amortized cost substandard
Type I Securities - no limitation
U.S. gov’t, general obligations of a state/political subdivision, municipal bond activities by well capitalized banks, obligations backed by the full faith and credit of US Gov’t, and FHLB, Fannie Mae, FHLMC debt
Type II Securities - 10% of capital and surplus
state obligations for housing, university, or dormitory purposes; obligations of international development banks; debt of Tennessee Valley Authority; debt of U.S. Postal Service
Type III Securities - 10% of capital and surplus
municipal revenue bonds; corporate bonds
Type IV Securities - 25% of capital and surplus (for mtg related security, no limitation)
investment-grade small business related securities; residential or commercial mortgageÐrelated securities rated AA or Aa or higher;
Type V Securities - 25% of capital and surplus
investment-grade and marketable asset-backed securities; investment grade residential and commercial mortgageÐrelated securities rated below AA or Aa,
These investments are short-term, highly liquid, and high-quality?
Money market investments
Which type of muni security relies on the taxing powers of the issuing government unit as a source of repayment?
General obligation
Trust Preferred Securities can expose investors to interest rate risk becauseÉ.
they have extended maturities
Effective Interest Method
Preferred method for amortizing premiums or accreting discounts. Process that systematically writes off a bond premium or discount by taking into acct the time value of money and results in an equal rate of amort/accretion for each period.
Current Yield
Current yield counts on coupon interest payments and ignores capital gains and reinvestment income.
Do security yields and prices move in the opposite direction?
Yes. Inverse relationship between price and yield.
The following securities activities are considered unsafe and unsound practices for banks.
Coupon Stripping; Stripped MBS; Repositioning Repurchase Agreements; Repos to Maturity; Adjusted Trading
Purposes for an investment portfolio
- provide liquidity, 2. & return
Bond Ratings (Lowest Investment Grade)
Moody’s : Baa3
Standard and Poor’s: BBB-
Fitch: BBB-
Debt securites w/coupon or principal pymts that depend on one or more indexes or contain embedded forwards or options?
Structured Notes
Form of structured note that pay investor above market yield for an initial period, then step up to a higher coupon rate based on increase in market rates?
step-up bond
Debt obligations issued by state and local governments and certain agencies and authorities.
Municipal Bonds
Two broadcategories of municipal bonds:
general obligation bonds and revenue bonds
Limited liability obligations or tax district bonds that rely on a specific source of revenue for repayment?
revenue bonds
Companies are required by ASC 320 to categorize each of its debt securities in one of three categories?
Held to maturity, available for sale, or trading
Securities in this account are accounted for at their amortized cost plus/minus premium or discount?
Held to maturity securities
Securities in this category are revalued at fair value at least quarterly, and the change in value is reported in an equity account (AOCI)?
Available for Sale securities
Changes to the fair value of this category of security are reported directly on the income statement?
Trading account
