Two depository institutions have composite CAMELS ratings of 1 or 2 and are “wel
ID: 1137835 • Letter: T
Question
Two depository institutions have composite CAMELS ratings of 1 or 2 and are “well capitalized.” Thus, each institution falls into the FDIC Risk Category I deposit insurance assessment scheme. Further, the institutions have the following financial ratios and CAMELS ratings:
Institution A
Institution B
Tier I leverage ratio (%)
8.25
7.58
Net income before taxes/risk-weighted assets (%)
2.15
1.85
Nonperforming loans and leases/gross assets (%)
0.25
0.55
Other real estate owned/gross assets (%)
0.54
0.75
Core deposits/total assets (%)
84.56
79.68
One-year asset growth
5.66
7.75
Loans as a Percent of Total Assets:
Construction & development
0.00
0.00
Commercial & industrial
11.35
15.66
Leases
0.45
1.05
Other consumer
16.50
16.80
Loans to foreign government
0.00
0.60
Real estate loans residual
0.00
0.00
Multifamily residential
0.50
1.25
Nonfarm nonresidential
0.00
0.00
1–4 family residential
38.85
40.15
Loans to depository banks
0.00
2.80
Agricultural real estate
4.55
0.00
Agricultural
7.40
0.00
CAMELS Components:
C
1
1
A
2
2
M
1
2
E
2
3
L
1
1
S
2
1
The DIF reserve ratio is currently 1.30 percent. Calculate the initial deposit insurance assessment for each institution.
Institution A
Institution B
Tier I leverage ratio (%)
8.25
7.58
Net income before taxes/risk-weighted assets (%)
2.15
1.85
Nonperforming loans and leases/gross assets (%)
0.25
0.55
Other real estate owned/gross assets (%)
0.54
0.75
Core deposits/total assets (%)
84.56
79.68
One-year asset growth
5.66
7.75
Loans as a Percent of Total Assets:
Construction & development
0.00
0.00
Commercial & industrial
11.35
15.66
Leases
0.45
1.05
Other consumer
16.50
16.80
Loans to foreign government
0.00
0.60
Real estate loans residual
0.00
0.00
Multifamily residential
0.50
1.25
Nonfarm nonresidential
0.00
0.00
1–4 family residential
38.85
40.15
Loans to depository banks
0.00
2.80
Agricultural real estate
4.55
0.00
Agricultural
7.40
0.00
CAMELS Components:
C
1
1
A
2
2
M
1
2
E
2
3
L
1
1
S
2
1
Explanation / Answer
Answer :- For determine deposit insurance assesment for each institution, we will setup a below table :-
CAMELS Components :
C 1 * 0.25 = 0.25 1 * 0.25 = 0.25
A 2 * 0.20 = 0.40 2 * 0.20 = 0.40
M 1 * 0.25 = 0.25 2 * 0.25 = 0.50
E 2 * 0.10 = 0.20 3 * 0.10 = 0.30
L 1 * 0.10 = 0.10 1 * 0.10 = 0.10
S 2 * 0.10 = 0.20 1 * 0.20 = 0.10
Weighted Average CAMELS Component 1.40 1.65
Base Assessment rates for two Institutions :-
Institution A Institution B
Tier 1 leverage ratio : 0.115 0.125
Net income : 0.030 0.030
Non performing loan : 0.0035 0.009
Other real estate : 0.007 0.012
Core deposits : 1.183 1.314
One year asset growth : 0.079 0.127
Construction & develop: 0 0
Commercial and industrial : 0.158 0.027
Leases : 0.006 0.017
Other consumer : 0.231 0.277
Loan to foriegn govt. : 0 0.009
Real estate loan : 0 0
Multifamily residential : 0.007 0.020
Nonfarm non residential : 0 0
1-4 family residential : 0.543 0.662
loans to depository bank : 0 0.046
Agriculture real estate : 0.063 0
Agricutural : 0.103 0
Sum of contributions : 2.528 2.756
Initial assement rate :-
Institution A : 2.528*1.30% = 0.032
Institution B : 2.756*1.30% = 0.035
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