Bank Manager Concerns Discussion 1.Discuss the concerns of the banks 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:
Asset Liabilities
Vault Cash. 10 million Transaction Accounts 650milion
Items in Collection 30 million MMDA 40 million
Securities 100 million Fed Funds Bought 10 million
Loans 600 million Subordinates 20 million
AAA rated 400 million
BBB rated 200 million
Fixed Assets 10 million Equity 30 million
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