商业银行管理Bank ManagmentFinancial Services7th第15章课后.docx

商业银行管理Bank ManagmentFinancial Services7th第15章课后.docx

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商业银行管理BankManagmentFinancialServices7th第15章课后

CHAPTER15

THEMANAGEMENTOFCAPITAL

GoalofThisChapter:

Thepurposeofthischapteristodiscoverwhycapital–particularlyequitycapital–issoimportantforfinancialinstitutions,tolearnhowmanagersandregulatorsassesstheadequacyofaninstitution’scapitalposition,andtoexplainthewaysthatmanagementcanraisenewcapital.

KeyTopicsinThisChapter

∙TheManyTasksofCapital

∙CapitalandRiskExposures

∙TypesofCapitalInUse

∙CapitalastheCenterpieceofRegulation

∙BaselIandBaselII

∙PlanningtoMeetCapitalNeeds

ChapterOutline

I.Introduction:

WhatIsCapital?

II.TheManyTasksCapitalPerforms

A.CushionAgainstRiskofFailure

B.ProvidesFundsNeededtoBeginOperations

C.PromotesPublicConfidence

D.ProvidesFundsforFutureGrowthandNewServices

E.RegulatorofGrowth

F.CapitalPlaysaRoleinMergers

G.LimitsHowMuchRiskExposureBanksandCompetingFirmsCanAccept

H.ProtectstheGovernment’sDepositInsuranceSystem

Ill.CapitalandRisk

A.KeyRisksinBankingandFinancialInstitutions’Management

1.CreditRisk

2.LiquidityRisk

3.Interest-RateRisk

4.OperatingRisk

5.ExchangeRisk

6.CrimeRisk

B.DefensesagainstRisk

1.QualityManagement

2.Diversification

a.Portfolio

b.Geographic

3.DepositInsurance

4.Owners'Capital

IV.TypesofCapital

A.CommonStock

B.PreferredStock

C.Surplus

D.UndividedProfits

E.EquityReserves

F.SubordinatedDebentures

G.MinorityInterestinConsolidatedSubsidiaries

H.EquityCommitmentNotes

I.RelativeImportanceoftheDifferentSourcesofCapital

V.OneoftheGreatIssuesintheHistoryofBanking:

HowMuchCapitalIsReallyNeeded?

A.RegulatoryApproachtoEvaluatingCapitalNeeds

1.ReasonsforCapitalRegulation

2.ResearchEvidence

VI.TheBasleAgreementonInternationalCapitalStandards:

AnHistoricContractamongLeadingNations

A.BaselI

1.TierOneCapital

2.TierTwoCapital

3.CalculatingRisk-WeightedAssetsUnderBasleI

4.CalculatingtheCapital-toRisk-WeightedAssetsRatioUnderBaselI

B.CapitalRequirementsAttachedtoDerivatives

1.BankCapitalStandardsandMarketRisk

2.MarketRiskandValueatRisk（VaR）Models

3.ValueatRisk（VAR）Models

4.LimitationsandChallengesofVaRandInternalModeling

C.BaselII:

ANewCapitalAccordUnfolding

1.PillarsofBaselII

2.InternalRiskAssessment

3.OperationalRisk

4.BaselIIandCreditRiskModels

5.ADual（Large-Bank,Small-Bank）SetofRules

6.ProblemsAccompanyingtheImplementationofBaselII

VII.ChangingCapitalStandardsInsidetheUnitedStates

A.FDICImprovementAct

B.PromptCorrectiveAction

1.WellCapitalized

2.AdequatelyCapitalized

3.Undercapitalized

4.SignificantlyUndercapitalized

5.CriticallyUndercapitalized

VIII.PlanningToMeetCapitalNeeds

A.RaisingCapitalInternally

1.DividendPolicy

2.HowFastMustInternallyGeneratedFundsGrow?

B.RaisingCapitalExternally

1.IssuingCommonStock

2.IssuingPreferredStock

3.IssuingSubordinatedNotesandDebentures

4.SellingAssetsandLeasingFacilities

5.SwappingStockforDebtSecurities

6.ChoosingtheBestAlternativeforRaisingOutsideCapital

IX.SummaryoftheChapter

ConceptChecks

15-1.Whatdoesthetermcapitalmeanasitappliestofinancialinstitutions?

Fundscontributedtoafinancialinstitutionprimarilybyitsowners,consistingmainlyofstock,reserves,andretainedearnings,plusanylong-termdebtissuedthatqualifiesunderregulations.

15-2.Whatcrucialroledoescapitalplayinthemanagementandviabilityoffinancialfirm?

Capitalprovidesthelong-term,permanentfundingthatisneededtoconstructfacilitiesandprovideabaseforthefutureexpansionofassets.Capitalalsoabsorbsoperatinglossesuntilmanagementhasachancetocorrecttheinstitution'sproblems.Fromaregulatoryperspectivecapitallimitsthegrowthofriskyassets.

15-3.Whatarethelinksbetweencapitalandriskexposureamongfinancialserviceproviders?

Capitalfunctionsasacushiontoabsorblossesuntilmanagementcancorrecttheproblemsgeneratingthoselosses.Institutionsfacemanydifferentkindsofrisk:

（1）crimerisk,

（2）interest-raterisk,（3）creditrisk,（4）liquidityrisk,（5）exchangeriskand（6）operationalrisk.Capitalrepresentstheultimatelineofdefenseagainsttheseriskswhenallotherdefensesfail.

15-4.Whatformsofcapitalareinusetoday?

Whatarethekeydifferencesbetweenthedifferenttypesofcapital?

Theprincipalformsofbankcapitalincludecommonandpreferredstock,surplus,retainedearnings,andsubordinatednotesanddebentures.Commonstockrepresentstheparvaluepaidbyowners,whilesurplusistheamountpaidoverparvalueforthestockwhenitisfirstsold.Preferredstockisaspecialtypeofownershipwheredividendsarefixedandstockholdersgenerallydonothaveavoteonmajoractivitiesundertakenbythefirm.Retainedearningsaretheaccumulatedearningsofthefirmkepttoreinvestbackinthecompany.Subordinatednotesanddebenturesarelongtermdebtinstrumentsthatdonnotrepresentownershipclaims.

Theprimecapital-adequacyratiosaretotalcapitaltoassets,equitycapitaltoassets,totalcapitaltoriskassets,andprimaryorcorecapitalandsupplementaryorsecondarycapitaltototalassetsandtorisk-adjustedassets.

15-11.Whatisthedifferencebetweencore（ortier1）capitalandsupplemental（ortier2）capital?

Corecapitalisthepermanentcapitalofabank,consistingmainlyofcommonstock,surplus,retainedearnings,andequityreserves.Supplementalcapitalissecondaryformsofbankcapital,suchasdebtsecuritiesandlimited-lifepreferredstockandafewqualifiedintangiblesassets.

15-12.Abankreportsthefollowingitemsonitslatestbalancesheet:

AllowanceforLoanandLeaseLosses$42million;UndividedProfits$81million;SubordinatedDebtCapital$3million;CommonStockandSurplus$27million;EquityNotes$2million;MinorityInterestinSubsidiaries$4million;MandatoryConvertibleDebt$5million;IdentifiableIntangibleAssets$3million;andNoncumulativePerpetualPreferredStock$5million.HowmuchdoesthebankholdinTier1capital?

InTier2capital?

DoesthebankhavetoomuchTier2capital?

TheTier1capitalitemsinclude:

TheTier2capitalitemsinclude:

Commonstockandsurplus

$27mill.

AllowanceforLoanand

LeaseLosses

$42mill.

UndividedProfits

81

SubordinatedDebtCapital

3

NoncumulativePerpetual

MandatoryConvertibleDebt

5

PreferredStock

5

EquityNotes

2

Minorityinterestin

IdentifiableIntangibleAssets

3

Subsidiaries

4

TotalTier1Capital

$117mill.

TotalTier2Capital

$55mill.

ThebankdoesnothavetoomuchTier2capital.Tier2capitalcanbeupto100percentoftheamountofTier1capitalandstillcounttowardmeetingcapitalrequirements.

15-13.WhatchangesintheregulationofbankcapitalwerebroughtintobeingbytheBaselAgreement?

WhatisBaselI?

BaselII?

U.S.banks,alongwithinternationalbanksfromotherindustrializednations,mustholdacoreorTier1（permanent）capitalratiotorisk-adjustedassetsof4percentandanadditional4percentinsupplementaryorsecondarycapital,underthetermsoftheBaselAgreementoninternationalcapitalstandards.BaselIreferstothecapitalstandardsthatareineffecttoday.BaselIIisanewcapitalrequirementaccordthatissupposedtoaddresstheweaknessesofBaselI.Itisscheduledtobephasedinstartingin2008.

15-14.FirstNationalBankreportsthefollowingitemsonitsbalancesheet:

cash$200million;U.S.governmentsecurities$150million;residentialreal-estateloans$300million;andcorporateloans$350million.Itsoff-balance-sheetitemsinclude:

standbycreditletters,$20millionandlong-termcreditcommitmentstocorporations,$160million.WhatareFirst

National'stotalrisk-weightedassets?

IfthebankreportsTierIcapitalof$30millionandTier2capitalof$20million,doesithaveacapitaldeficiency?

Wefirstconverttheoff-balance-sheetitemstotheircredit-equivalentamounts:

Off-Balance-SheetItems

StandbyCreditLetters$20mill.*1.00=$20mill.

Long-TermCommitmentstoCorporations$160mill.*0.50=80mill.

Thenwerisk-weightallassets:

Risk-WeightedAssets

Cash

$200mill.*0=

$0mill.

U.S.GovernmentSecurities:

$150mill.*0=

0

StandbyCreditLetters:

$20mill.*0.20=

4

ResidentialRealEstateLoans:

$300*0.50=

150

CorporateLoans:

$350*1.00=

350

Long-TermCreditCommitments:

$80*1.00=

80

TotalRisk-WeightedAssets=

$584

Thebankhastotalcapitalof:

Tier1capital=$30mill.

Tier2capital=$20mill.

$50mill.

Thebank'scapitaltorisk-weightedassetratiois:

$50mill.=0.086or8.6%

$584mill.

whichexceedstheminimumrequirementof8percent.Moreover,morethan4percentofthe8.6percentincapitalisTier1capital,sothebanksatisfiesthecapitalrequirements.

15-15.HowistheBaselAgreementlikelytoaffectabank'schoicesamongassetsitwouldliketoacquire?

UnderthecapitalstandardsbroughtintobeingbytheBaselAgreement,differingriskweightswillapplytodifferentkindsofbankassets.Eachdollarofhigh-riskassets,suchascorporateloansandhomemortgages,requiresagreaterproportionofbankcapitalpledgedbehinditthanadollaroflow-riskassets,suchasgovernmentsecurities.Banksdesiringtokeeptheircapitalcostsaslowaspossiblewillmovetowardgovernmentsecuritiesandawayfromcorporateloansandhomemortgageloans.Theywillalsochangethetypesofoff-balancesheetitemstheyholdfo