1.Discuss the concerns of the bank's manager given the following information regarding each of these five areas...
Question:
1.Discuss the concerns of the bank's manager given the following information regarding each of these five areas of concern (is it a concern or not?)
a. Liquidity, b. Compliance, c. Rate-Sensitivity, d. Asset Quality, & e. Capital Adequacy.
GIVEN: the reserve requirement is 10% of transaction accounts.Industry averages are 10% for primary liquidity and 15% for secondary liquidity (25% total liquidity).Transaction Accounts and Securities are rate-sensitive, but Loans are not.Risk is perceived to increase beyond acceptable levels if highest quality loans are less than 60% of the Loan Portfolio or money market dependence exceeds 10%; and the capital requirement is 5% on primary capital and 8% inclusive of secondary capital.
COMPARE TO ACTUAL POSITION AS INDICATED ON BALANCE SHEET:
Assets Liabilities
Vault Cash10 millionTransaction Accounts650 million
Items in Collection30 millionMMDA40 million
Securities100 millionFed Funds Bought 10 million
Loans600 millionSubordinates20 million
AAA rated 400 million
BBB rated 200 million
Fixed Assets10 million Equity30 million