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29. Webb Bank has a composite CAMELS rating of 2, a total risk-based capital rat

ID: 2335758 • Letter: 2

Question

29. Webb Bank has a composite CAMELS rating of 2, a total risk-based capital ratio of 10.2 percent, a Tier 1 risk-based capital ratio of 6.2 percent, a CET1 leverage ratio of 5.0 percent, and a Tier I leverage ratio of 4.8 percent. What deposit insurance risk category does the bank fall into, and assuming the DIF reserve ratio is currently 1.20 percent, what is the bank’s deposit insurance assessment rate?

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

what is the bank’s deposit insurance assessment rate?

It is under category 2 risk category and has a deposit insurance assessment rate of 22 cents per $ 100 of deposits.

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