What are the conceptual differences between the trend, seasonal, and cyclical components of a bank’s loans and deposits? Discuss why a bank should examine each component rather than simply look at total loans and deposits.
Answer to relevant QuestionsWhat are the advantages and disadvantages of using financial leverage? Answer from the banker’s point of view and then from the bank regulator’s point of view. Some analysts believe that the new Basel III minimum capital requirements are excessive and will reduce bank profitability, ceteris paribus. Summarize these arguments. Regulators put great pressure on banks to reduce their common dividend payments when asset problems appear. Discuss the costs and benefits of cutting dividends. Describe the basic features of the following: a. Open credit lines b. Asset based loans c. Term commercial loans d. Short term real estate loans Explain why historical charge off and past due data may not represent the bank’s current portfolio credit risk.
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