《商业银行管理学》课后习题答案.

CHAPTER 23BANK MERGERS AND ACQUISITIONSGoal of This Chapter: To understand why the banking industry undertakes so many mergers each year, to discover the steps necessary to evaluate and complete a bank merger or acquisition and explore the research evidence concerning the impact of mergers on the banks involved and on service to the public.Key Terms Presented in This ChapterProfit Potential Purchase-of-Assets MethodsCash Flow Risk Purchase-of-Stock MethodEarnings Risk Wholesale BanksTax Benefits Retail BanksMarket-Positioning Benefits Bank Merger Act of 1960Cost Savings (Efficiency) Competitive EffectsMerger Premium Public BenefitsExchange Ratio Justice Department Merger GuidelinesDilution of Ownership Herfindahl-Hirschman IndexChapter OutlineI. Introduction: Merger Trends in BankingII. Mergers on the RiseIII. Motives for the Rapid Growth of Bank Mergers (Merger Motivations)A. Profit PotentialB. Risk ReductionC. Rescue of Failing BanksD. Tax and Market-Positioning MotivesE. Cost Savings or Efficiency MotiveF. Mergers as a Device for Reducing CompetitionG. Other Merger MotivesH. Merger Motives that Banking Executives IdentifyIII. Selecting a Suitable Merger PartnerA. Stock Price EffectsB. Opportunities for Improving Operating EfficiencyC. Diversification Effects and OpportunitiesD. Merger Premiums, P-E Ratios, and Exchange RatiosIV. The Merger and Acquisition Route to Future GrowthV. Methods of Consummating Merger TransactionsA. Purchase-of-Assets MethodB. Purchase-of-Stock MethodVI. Regulatory Rules Applying to Bank Mergers in the United StatesA. Bank Merger Act of 1960285B. Competitive Effects of MergerC. The Public Benefits TestD. Department of Justice Merger Guidelines and the Herfindahl - Hirschman Index VII. The Merger Decision-Making Process by U.S. Federal RegulatorsVIII. New Merger Rules in EuropeIX. Making a Success of MergersX. Research Studies of MergersA. The Financial Impact on BanksB. The Public BenefitsXI. Summary of the ChapterConcept Checks23-1. Exactly what is a bank merger?Mergers between banks result in the combining of the assets and liabilities of two or more banks. To effect a merger the shareholders of all the banks involved must approve the merger transaction once it is negotiated among the management of the various banks that are parties to the merger. Once the shareholders of each bank involved give approval to the merger, approval must then be sought from the Department of Justice and the principal federal regulatory agency of each bank in the merger.23-2. Why are there so many mergers each year in the banking industry?Many (if not most) mergers occur because the shareholders of the banks involved expect increased profit potential once the merger is consummated. Alternatively, many partners to mergers anticipate reduced cash-flow risk and possibly reduced earnings risk as well.23-3. What factors seem to motivate most bank mergers?Among the most powerful merger motivations are the belief in greater profit potential if a bank merger is consummated, the expectation of a possible reduction of cash flow risk or earnings risk, the possible rescue of failing banks, the gaining of a tax advantage where profits of one merger partner may be offset by the losses of another merger partner, the search for market-positioning benefits in new markets or in superior locations in existing markets, and the pursuit of lower cost and greater efficiency so that the merged institution achieves a greater margin of revenues over operating expense.23-4. What factors should a bank consider when choosing a good merger partner?The following items are the principal factors usually reviewed by the acquiring banking organization:∙Age and history of the bank.∙Background of management.∙Comparative management styles of the merging organizations.286∙Types of services offered.∙Recent history of changes in deposits, loans, and market shares.∙Principal customers served. Geographic fit.∙Internal control procedures.∙Personnel situation.∙Compatibility of accounting and management information systems.∙Condition/depreciation schedule for offices and other physical assets.∙Adequacy of capital, earnings per share, and ownership dilution before and following the proposed merger.∙Growth of expenses.∙Before-tax and after-tax income and rate of return.23-5. What factors must the regulatory authorities consider when deciding whether to approve or deny a bank merger?Mergers that would significantly damage competition cannot be approved unless there are mitigating instigating circumstances (e.g., one of the banks involved is failing). Public convenience must also be weighed by the banking agencies to determine if the merger would improve the supply of needed services that are perhaps currently not being conveniently and efficiently provided to the public.23-6. When is a banking market too concentrated to allow a merger to proceed? What could happen if a bank merger were approved in an excessively concentrated market area?The Department of Justice guidelines state that the banking market area is too concentrated if the postmerger Herfindahl index is greater than 1800 or if the Herfindahl index changes by more than 200 points. If the Justice Department decides that the resultant merger will make the banking market too concentrated they are likely to challenge the merger in federal court.23-7. What steps that management can take appear to contribute to the chances for success in a bank merger? Why do you think many bank mergers produce disappointing results?There are several steps management can take to improve their chances of success after a merger. First they can know themselves, their strengths and weaknesses and the goals they want to pursue. They can also get a team together before any merger to do a detailed analysis of the potential merger and new market area. They can be careful to establish a realistic price for the target firm. Once the merger has taken place they should form a combined management team from both firms to direct the consolidation of the two firms. They should also establish lines of communication between senior management and branch and line management as well as communication channels for other employees and customers. Finally they should set up customer advisory panels to comment on the new bank’s community image, availabil ity of services and helpfulness. Mergers sometimes produce disappointing results because of ill-prepared management, a mismatch of corporate cultures, excess prices paid by the acquirer, inattention to customers feelings and concerns and a general lack of fit between the two firms.23-8. What does recent research tell us about the impact of most bank mergers?287A recent study, which looked at the earnings impact of approximately 600 national bank mergers, found no significant differences in profitability between merging and comparably sized nonmerging banks serving the same local markets. However, CEOs at a substantial majority of the nearly 600 U.S. bank mergers occurring from 1970-1985 believed their capital base improved and they were now a more efficient banking organization. However, as a study by Rose found there is no guarantee of success in a merger. This study of 572 banks which purchased nearly 650 other banks found a symmetric distribution of earnings outcomes for these mergers – nearly half displaying negative earnings results.23-9. Does it appear that most bank mergers among banking firms serve the public interest?Most studies that have looked at this issue find few real public benefits. However, there is also no convincing evidence that the public has suffered a decline in service quality or availability following most bank mergers. On the positive side, mergers may significantly lower the bank failure rate.Problems23-1. Evaluate the impact of the following proposed mergers upon post-merger earnings per share (EPS) if:A. The acquiring bank has a stock price of $18 per share on 200,000 shares of commonoutstanding with an EPS of $6 due to total net earnings of $1,200,000. The acquiredbank is earning $5 per share on 100,000 shares outstanding and reports total netearnings of $300,000 and its stock sells for $15 per share. If earnings total$1,600,000 after the merger occurs, the acquired bank's shareholders will receive$15 / $18 or 0.833 of a share of stock in the acquiring bank for each share they heldin the acquired institution. This means 0.833 x 100,000 or 83,300 additional sharesof the acquiring bank will be issued for a post-merger total of 283,300 sharesoutstanding. Therefore, the post-merger EPS will be $1,600,000 / 283,300sharesor $5.65 per share.B. The acquiring bank is reporting an EPS of $12 and its stock (with 80,000 sharesoutstanding) is selling for $20 per share. The acquired institution has EPS of $14and its stock (with 75,000 shares outstanding) is presently trading at $24 per share.If the two banks agree to exchange stock at current market values, the acquiredbank's stockholders will receive $24 / $20 or 1.2 shares in the acquiring bank foreach share they hold or 90,000 (1.2 x 75,000) additional shares. After the mergerthere will be 170,000 shares outstanding. With $900,000 in post-merger earnings,the combined banking organization's EPS will be $900,000 / 170,000 shares or$5.29 per share.23-2. The merger premiums and exchange ratios for the mergers described are calculated as follows:288A. The acquired bank is selling at $8 per share with 30,000 shares outstanding, whilethe acquiring bank's stock is selling for $12 per share with 50,000 common equity shares outstanding. The acquiring bank will pay a $4 bonus per share to effect the merger. Therefore, a merger premium will be paid amounting to:Merger Premium (in Percent) = [($8 + $4) / $8] x 100 = 150 percent.With an additional $4 per-share bonus the acquired bank's stock will be valued at $12, exactly the same as the acquiring bank's stock for a $12 / $12 or 1:1 exchange ratio. Earnings per share from the merger will be:EPS = $1,250,000 / 80,000 shares = $15.63.Before the merger, the acquiring bank had an EPS of $20, while the acquired bank reported an EPS of $8.33. This suggests there will be some earnings dilution for the shareholders of the acquiring bank (from $20 to $15.63 per share) as well as some ownership dilution.B. If the acquiring bank's stock is currently selling for $30 per share and the acquiredinstitution's shares are trading at $24 per share and the acquired firm's shareholders are offered a $2 per-share bonus to merge, the merger premium will be:Merger Premium (in Percent) = [($24 + $2) / $24] x 100 = 108.33 percent.Thus, the acquired bank's stock will exchange in a ratio of $26 to $30 for theacquiring bank's stock or 0.867 to 1. Thus, the acquired bank's shareholders willreceive 0.867 x 40,000 or 34,667 shares in the merged institution which will then have a total of 154,667 shares outstanding.Post-merger EPS should be: $900,000 / 154,667 shares = $ 5.82.Before the merger, the acquiring institution reported an EPS of $7.08 and theacquired institution had an EPS of $3.75. Again, the acquiring institution'sshareholders will experience some earnings dilution as well as some decline in their ownership share.28929023-3. The Herfindahl-Hirschman Index for the Silverton Metropolitan Area is calculated as follows:Bank Current Deposits Current Deposit Market Share Current DepositMarket Share Squared Silverton National Bank $ 854 million 39.54 % 1563.41 Commerce National Bank 383 million 17.73 314.35 Rocky Mountain Trust Company211 million 9.77 95.45Security National Bank 107 million 4.95 24.50Total $2160 million 100.0 % 2782.27The Silverton market has an HHI above 1800 and is, therefore, highly concentrated. If Rocky Mountain Trust Co. and Security National Bank merge, their combined market share is 14.72 percent and the HHI climbs to 2879.0, a change of only 96.7 points which may be acceptable to the regulatory authorities. However, if Silverton County Merchants Bank and Rocky Mountain Trust Company plan to merge, the combined market share of these two banks is 37.78 percent and the HHI rises to 3329.59, a change of 547 points which will, in all probability, be challenged by the regulatory authorities.23-4. Langley Bank and Trust has just received an offer to merge from Courthouse County National Bank. Langley's stock is currently selling for $40 per share. Moreover, the shareholders of Courthouse County Bank agree to pay Langley's stockholders a bonus of $10 per share. What is the merger premium in this case? If Courthouse County's shares are currently trading for $65 per share, what is the exchange ratio between the equity shares of the two banks? Suppose that Langley has 10,000 shares and Courthouse County has 30,000 shares outstanding. How many shares will Langley’s shareholders wind up with after the merger? How many total shares will the merged bank have outstanding?The merger premium must be:percent 125x100$40$10+ $40The exchange ratio between the respective banks' shares is:($40 + $10) / $65 = 0.77 to 1.If Langley has 10,000 shares outstanding and Courthouse County has 30,000 shares, Langley's shareholders will receive 0.77 x 10,000 or 7,700 shares in the consolidated banking company. The merged firm will have 37,700 shares of stock outstanding.23-5. The community of Wanslow is served by three banks which recently reported total deposits of $234 million, $182 million, and $67 million, respectively. Please calculate the Herfindahl index for the Wanslow market area. Suppose that the second and third largest banks merge, what wouldthe post-merger Herfindahl index be? Under the most recent Department of Justice guidelines discussed in the chapter, would the U.S. Department of Justice be likely to challenge this merger?The banking market in Wanslow has the following structure:Deposits Market Share Square of EachMarket Share Bank A $234 million 48.4% 2342.6 Bank B 182 million 37.7% 1421.3 Bank C 67 million 13.9% 193.2 Totals $483 million 100.0% 3957.1 Thus, the Herfindahl-Hirschmann index is 3957.1 in the Wanslow market area. This is a relatively concentrated market to begin with. If the second and third largest banks merge, the post-merger Herfindahl index climbs to 5,005.2 because the combined share of banks B and C jumps to over 50 percent. Clearly, the Herfindahl index rises by more than 200 points and far exceeds 1800 in total. This merger would be challenged by the Department of Justice in the absence of mitigating factors.23-6. In which of the situations described below do the stockholders of both acquiring and acquired banks experience a gain in earnings per share of stock as a result of a merger:P/E Ratio of AcquiringBank P/E Ratio ofAcquiredBankPre-MergerEarnings ofAcquiring BankPre-MergerEarnings ofAcquired BankCombinedEarningsAfter MergerA. 5 3 $750,000 $425,000 $1,200,000B. 4 6 470,000 490,000 850,000C. 8 7 890,000 650,000 1,540,000D. 12 12 1,615,000 422,000 2,035,000The rule is that the stockholders of both acquiring and acquired banks will experience a gain in earnings per share of stock if a bank with a higher P/E ratio acquired a bank with a lower P/E ratio and combined earnings do not fall after the merger. Only cases A and C meet these criteria and the shareholders in these two cases should experience an earnings-per-share gain.23-7. Please list the steps that you believe should contribute positively to success in a bank merger transaction. What management decisions or actions could cause trouble and not contribute to a bank’s merger goals? On average what proportion of bank mergers would you expect would be likely to achieve the goals of management and/or the owners and what proportion would likely fall short of the mergers’ objectives?The steps a bank can take that will contribute positively to the success in a bank merger include the following:291A.The bank must first evaluate its own financial condition, understand its ownstrengths and weaknesses and its own goals. Mergers can then magnify strengthsand minimize weaknesses.B.The bank should form a team to perform a detailed analysis of all potential newmarkets and acquisitions.C.The bank must establish a realistic price for the acquisitionD.After the merger, a combined management team should be formed to continuallywork towards and assess the progress towards the consolidation of the two firms.E. A communication system needs to be formed between senior management andother managers so everyone feels involved in the merger.munication channels need to be formed so customers and employeesunderstand why the merger took place and what the consequences of the merger arelikely to be.G.Customer advisory panels need to be formed to evaluate and comment on thebank’s image in the community, marketing effectiveness and general helpfulness tocustomers.Management decisions and actions which could cause problems for the merger include managers that are ill-prepared, mergers where there is a poor understanding of each other’s culture, mergers where an excessive price is paid for the merger, mergers where customers feelings and concerns are ignored and mergers where the new firm cannot move forward in a cohesive manner.According to some research, it appears that only half of all mergers achieve the goal of an increase in earnings (or profitability). The other half of mergers see a decrease in earnings for the new firm.Web Site Problems1. How are mergers and acquisitions reshaping the banking industry today at the local, national and international levels? Where on the web can you go to get some idea about how to answer this question?A search on the web for how mergers and acquisitions are shaping the banking industry can lead to answers at all levels. First as a n example of the trends at the local and national level, one good source appears to be a speech by William Poole, President of the St. Louis Federal Reserve (/general/speeches/990112.html). He does not foresee the decline of the community bank because they still retain some advantages including the personal touch. However, I believe he sees continued consolidation among the largest banks. In Europe the outlook is similar. In a speech by Dr. A.H.E.M. Wellink, President of De Nederlandsche Bank(http://www.dnb.nl/english/e_speeches/1999/we991006.htm), he states that changes in technology and the Euro as well as other changes will the structure of the European banking industry by continuing the drive toward consolidation in the industry.2. What appears to be the ingredients of a successful bank merger or acquisition? How can the web help you approach this important issue?292A search on successful bank mergers and acquisition may produce some results from the web. There are several merger and acquisition consultants on the web that can help banks as well as other types of firms. One place (/integrate-intl-mergers.html) suggests that the key ingredient of a successful merger is to make sure the merger partner is suitable (that there are similar cultures,etc.) and that a good due diligence is completed before the merger or acquisition.3. In what parts of the world are most bank mergers occurring today? What does the evidence from the web suggest?I believe that there is considerable activity in cross border mergers in recent years. If a search is done on bank mergers across the world this may lead to several sources of information. One source that has been cited here before is one of the publications of the European Central Bank which states that there are many cross-border mergers taking place, often between European Community member banks and outsiders. There is also information out on the web that suggests that cross-border mergers are taking place in Asia(/external/pubs/ft/fandd/2001/03/mody.htm). This suggests that bank mergers are growing at a considerable rate in many places in the world.293294。

《商业银行管理学》习题参考答案第一章1．金融制度对现代经济体系的运行起到了什么作用？（1）配置功能（2）节约功能（3）激励功能（4）调节功能2．商业银行在整个金融体系中有哪些功能？（1）金融服务功能（2）信用创造功能3．美国、英国、日本和德国的商业银行制度特征是什么？比较英美和日德的银行制度差异。

美国：是金融制度创新和金融产品创新的中心，拥有健全的法律法规对银行进行管制；竞争的激烈，使得美国商业银行具有完善的管理体系和较高的管理水平；受到双重银行体系的管制，即联邦和州权力机构都掌握着管制银行的权利。

英国：成立最早，经验丰富，实行分支行制；银行系统种类齐全、数量众多，按英国的分类，英国的银行主要包括清算银行，商人银行，贴现行，其他英国银行和海外银行等机构；不存在正式的制度化的银行管理机构，惟一的监管机构是作为中央银行的英格兰银行；典型的实行分业经营的国家。

日本：货币的统一发行集中到中央银行－日本银行；商业银行按区域划分的，具体可分为两大类型，即都市银行和地方银行；受到广泛的政府管制；二战前仿效英国业务分离的做法，之后随着环境的变化和经济的发展日本银行从1998年开始实行混业经营。

德国：由统一的中央银行－德意志联邦银行，统一发行货币，且德意志联邦银行被认为是欧洲各国中最具有独立性的中央银行。

德国银行高度集中，实行全能化的银行制度，密集程度是欧盟各国中最高的。

区别：英美在其业务上侧重存款的管理，而日德则侧重在贷款方面。

英美制度完善，有利于银行之间的竞争，日德法律体系发展相对缓慢。

4．根据你对我国银行业的认识，讨论我国银行业在国民经济中的地位以及制度特征。

答：地位：（1）我国的商业银行已成为整个国民经济活动的中枢（2）我国的商业银行的业务活动对全社会的货币供给具有重要影响（3）商业银行已经成为社会经济活动的信息中心（4）商业银行已经成为国家实施宏观经济政策的重要途径和基础（5）商业银行成了社会资本运动的中心制度特征：建立商业银行原则，有利于银行竞争，有利于保护银行体系安全与稳定，使银行保持适当规模。

《商业银行管理》课后习题答案IMChap4在学习商业银行管理的过程中，课后习题是巩固知识、检验理解的重要环节。

以下是对《商业银行管理》第四章课后习题的详细答案。

一、选择题1、商业银行的核心资本包括（）A 股本和公开储备B 股本和未公开储备C 债务资本和附属资本D 债务资本和公开储备答案：A解析：核心资本又称一级资本，包括股本（普通股和永久非累积优先股）和公开储备（股票发行溢价、未分配利润等）。

2、下列属于商业银行附属资本的是（）A 重估储备B 普通股C 未分配利润D 公开储备答案：A解析：附属资本包括未公开储备、重估储备、普通准备金、混合资本工具和长期次级债务等。

3、商业银行资本充足率的计算公式是（）A 资本/风险加权资产B 资本/总资产C （核心资本+附属资本）／风险加权资产D （核心资本+附属资本）／总资产答案：C解析：资本充足率＝（核心资本＋附属资本）／风险加权资产。

4、按照《巴塞尔协议》的要求，商业银行的资本充足率不得低于（）A 4%B 8%C 10%D 12%答案：B解析：《巴塞尔协议》规定商业银行的资本充足率不得低于 8%。

二、简答题1、简述商业银行资本的作用。

答：商业银行资本具有以下重要作用：首先，资本为银行的开业、正常经营和持续增长提供了资金基础。

它是银行设立和注册的必要条件，为银行的初期运营提供启动资金。

其次，资本是银行抵御风险的重要防线。

在面临各种风险如信用风险、市场风险、操作风险等时，资本可以吸收损失，保护存款人和其他债权人的利益，维持银行的信誉和稳定。

再者，资本有助于树立公众对银行的信心。

充足的资本向外界传递了银行稳健经营、有能力应对潜在风险的信号，增强了客户、投资者和监管机构对银行的信任。

此外，资本还为银行的扩张和业务发展提供了支持。

银行可以利用资本进行新业务的开拓、分支机构的设立以及技术设备的更新等。

2、简述《巴塞尔协议》对商业银行资本构成的规定。

答：《巴塞尔协议》将商业银行的资本分为核心资本和附属资本两大部分。

CHAPTER 17BANK LENDING: POLICIES AND PROCEDURESGoal of This Chapter: To discover the features and characteristics of a sound bank loan policy and to examine some of the characteristics of problem bank loans.Key Terms Presented in This ChapterReal Estate Loans Cash flowFinancial Institutions Loans NoteAgriculture Loans Loan Commitment AgreementCommercial and Industrial Loans CollateralLoans to individuals Restrictive CovenantsWholesale lenders WarrantiesRetail Credit Events of DefaultCAMELS Rating Loan reviewCash Loan WorkoutsChapter OutlineI. Introducing Lending - The Principal Reason for the Existence of Banks and the Center ofBank RiskII. Types of Loans Made by Banks (Classified by Purpose)A. Real Estate LoansB. Financial Institutions LoansC. Agricultural LoansD. Commercial and Industrial LoansE. Loans to IndividualsF. Miscellaneous LoansG. Lease Finance ReceivablesIll. Factors Determining the Growth and Mix of Bank LoansA. Profile Characteristics of a Bank's Market AreaB. Role of Loan ParticipationsC. Role of Bank Size (Wholesale vs. Retail Lenders)D. Experience and Expertise of ManagementE. Bank's Loan PolicyF. Expected Yield to the BankIV. The Regulation of LendingA. The Loan Limit RuleB. Limitation on Real Estate LendingC. The Community Reinvestment ActD. Truth-in-Lending LawsE. Equal Credit Opportunity Laws221F. International Lending RulesG. Condition Ratings of Banks (The CAMELS)H. Examiner Loan RatingsV. Establishing A Written Loan PolicyA. Benefits of a Written Bank Loan PolicyB. Contents of a Written Bank Loan PolicyVI. Steps in the Lending ProcessA. The Sources of Loan Requests and Customer Contact ReportsB. Interviewing the Credit Customer and the Character IssueC. Site VisitsD. Processing the Loan RequestE. Monitoring Compliance With the Terms of a LoanVII. Credit Analysis: What Makes a Good Loan?A. Is the Borrower Credit Worthy?1. Character2. Capacity3. Capital (and Cash Flow)4. Collateral5. Conditions6. ControlB. Can the Loan Agreement Be Properly Structured and Documented?C. Can the Bank Perfect Its Claim Against the Borrower's Collateral?1. Reasons for Taking Collateral2. Common Types of Loan Collateral3. Other Safety Devices to Protect a LoanVIII. Sources of Information About Loan CustomersA. Credit BureausB. Publications of Financial InformationC. Information on Economic ConditionsIX. Parts of A Typical Loan AgreementA. The NoteB. Loan Commitment AgreementC. CollateralD. Covenants (Affirmative and Negative)E. Borrower Guaranties or WarrantiesF. Events of DefaultX. Loan ReviewA. The Purpose of Loan ReviewB. Elements of a Good Loan ReviewXI. Handling Problem Loan SituationsA. Signs of a Developing Problem Loan SituationB. Steps in Maximizing the Recovery of Bank Funds from a Problem Loan (the LoanWorkout Problem)XII. Summary of the Chapter222Concept Checks17-1. In what ways does a bank's lending function affect the economy of a local area or region?Bank credit is one of the most important sources of capital that fuels local economic growth and development. When banks make loans to support the development of new businesses and to aid the growth of existing businesses, new jobs are created and there is a greater flow of income and spending throughout the local economy.17-2. What are the principal types of loans made by banks?Bank loans are usually classified by the purpose of the loans. The most common classifications are real estate loans, commercial and industrial loans, loans to financial institutions, credit-card and other loans to individuals, and agricultural production loans Bank loans may also be classified by maturity - over one year and one year or less.17-3. What factors appear to influence the growth and mix of bank loans?The particular mix of any bank's loan portfolio is shaped by the characteristics of its market area, the expected yield and cost associated with each type of loan, bank size, the experience of management, the bank's written loan policy and regulations.17-4 A bank's cost accounting system reveals that its losses on real estate loans average 0.45 percent of loan volume and its operating expenses from making these loans average 1.85 percent of loan volume. If the gross yield on real estate loans is currently 8.80 percent, what is the bank's net yield on these loans? Suppose that the same bank reports operating expenses of 2.95 percent and losses of 0.70 percent on loan volume and a net yield of 6.30 percent on commercial loans. What is the bank's gross yield on commercial loans?The bank's net yield on real estate loans must be:Net Yield on Real Estate Loans = 8.80% - 0.45% - 1.85% = 6.50%The gross yield on commercial loans would be:Gross Yield on Commercial Loans = 2.95% + 0.70% + 6.30% = 9.95%17-5. Why is bank lending so closely regulated by state and federal authorities?Bank lending is closely regulated because it is the center of risk for most banks. National banks in the U.S. are limited in the loans they can make to a single borrower by the size of each bank's capital and surplus. They also must limit their real estate loans based on the size of the bank's total time and savings deposits or capital. Discrimination against borrowers on the basis of their age, sex, religion, or national origin is prohibited by U.S. law. U.S. banks also cannot discriminate against borrowers from certain neighborhoods in their service areas.22317-6. What is the CAMELS rating and for what is it used?The CAMELS is a system used by federal bank examiners for evaluating the overall condition of a bank based upon the adequacy of its capital, the quality of its asset portfolio, its management quality, the adequacy of its earnings, its liquidity and its sensitivity to market risk.17-7. What should a good written bank loan policy contain?A good written bank loan policy should specify the goals of the bank's loan portfolio and program, describe an ideal loan portfolio for the bank and indicate the types of loans the bank normally will refuse to make, specify who has the authority to approve loans of varying type and size, the documentation requirements of different types of loans, and supply guidelines on loan pricing and collateralization for loan officers.17-8. What are the typical steps in a loan request from a customer?A loan officer usually takes or receives such a request initially and passes it along to the credit analysis division for technical review. Usually the recommendations of both the credit analyst and the loan officer are directed to a loan supervisor or loan committee for approval.17-9. What three major questions or issues are considered in evaluating nearly all loan requests?The three key issues with every loan:1. is the borrower credit worthy?2. can the loan agreement be properly structured and documented?3. can the bank perfect its claim against the borrower's collateral?17-10. Explain the meaning of the following terms: character, capacity, cash, collateral, conditions, and control?a. Character -- is the borrower serious about the purpose of a loan and intends to repay?b. Capacity -- does the borrower have the legal authority to sign and commit to a binding loanagreement?c. Capital -- does the borrower generate sufficient income or cash flow to properly service aloan?d. Collateral -- does the borrower possess assets of sufficient quality and value to backstop aloan?e. Conditions -- does the outlook for the economy and industry where a borrower is situatedadd strength to a loan?224f. Control -- does the proposed loan meet the bank's own quality standards and the standardsof bank examiners?17-11. A business borrower reports net profits of $2.1 million in the current year compared to $2.7 million the preceding year. Depreciation and other noncash expenses amounted to $0.7 million versus $0.6 million the previous year. Accounts payable for the current year amount to $20.9 million compared to $24.2 million the year before, while inventories total $8.4 million during the most recent year versus $7.8 million the previous year. In contrast, accounts receivable rise from $16.8 million the previous year to $20.1 million at the conclusion of the current year. The firm's projected cash flow can be estimated by either of two methods discussed in the text: Cash Flow Estimate A = $2.1 million + $0.7 million +($20.9 million - $24.2 million)for the Current Year - ($8.4 million - $7.8 million) –($20.1 million – $16.8 million)= - $4.4 million.Cash Flow Estimate B = $2.1 million + $0.7 million = $2.8 millionfor the Current YearThe previous year the cash flows amounted to:Cash Flow Estimate A = Not enough information to estimate thisfor the Previous YearCash Flow Estimate B = $2.7 million + $0.6 million = $3.3 millionFor the Previous YearClearly the firm's cash flow is falling, which suggests that the bank needs to find out the reasons for this decline before committing any of the bank's funds.17-12. What sources of information are available today for bank loan officers and credit analys ts to use in evaluating a customer loan application?Among the most widely used sources of information used in evaluating loans are financial statements supplied by the borrower and industry-wide performance ratios for comparison purposes supplied by such organizations as Dun and Bradstreet and Risk Management Associates (RMA).17-13. What are the principal parts of a loan agreement? What is each part designed to do?The most important parts of loan agreements include a signed note, a listing of covenants, documents specifying loan collateral, and a section describing what events or happenings will trigger default.17-14. What is loan review? How should a loan review be conducted?225Loan review is a process of periodic investigation of outstanding loans on a bank's books to make sure each loan is paying out as planned, all necessary documentation is present, and the bank's loan officers are following the institution's loan policy. While banks today use a variety of different loan review procedures, a few general procedures are followed by nearly all banks. These include:1. Carrying out reviews of all types of loans on a periodic basis.2. Structuring the loan review process carefully to make sure the most importantfeatures of each loan are checked.3. Reviewing the largest loans most frequently.4. Conducting more frequent reviews of troubled loans.5. Accelerating the loan review schedule if the economy slows down or if industries inwhich the bank has made a substantial portion of its loans develop significantproblems.Loan review is not a luxury but a necessity for a sound bank lending program. It not only helps management spot problem loans more quickly but also acts as a continuing check on whether loan officers are adhering to a bank's loan policy. For this reason, as well as to promote objectivity in the loan review process, many of the largest banks separate their loan review personnel from the loan department itself. Loan reviews also aid senior management and the bank's board of directors in assessing the bank's overall exposure to risk and its possible need for more capital in the future.17-15. What are some warning signs to bank management that a problem loan may be developing?Problem loans are often characterized by reduced communication between borrower and lender, delays in receiving financial reports, evidence of reevaluations of assets (such as inventory or pension-plan assets), declining stock prices, changes in management, or the restructuring of other loans the borrower has taken out.17-16. What steps should a banker go through in trying to resolve a problem loan situation?The most important first step is to move quickly to contact the borrower, to ascertain if the borrower understands the nature of the loan problem, to explore for creative solutions to the problem, and to get the borrower to reach a decision on the best solution possible.Problems17-1. Karakee V. Corporation, seeking renewal of its $12 million credit line, has the following cash flow estimates (in millions of dollars) based upon the data recently reported by the company to Whelington National Bank:Proj. for19X1 19X2 19X3 19X4 Next Year226Cash Flow Estimate 1(Net Profit + Noncash Expenses) $15.6 $15.8 $16.0 $15.1 $14.5Cash Flow Estimate 2(Net Profits + Noncash Expenses+ Added Accounts Payable –Added Accounts Receivableand Added Inventories) - $15.7 $16.1 $15.2 $14.2Clearly, under both measures of cash flow Karakee is experiencing a significant decline in its actual and estimated cash flow, which suggests a careful look at the firm's financial statements and operations before renewing its credit line for the full amount requested. Of special concern is the steady buildup in accounts receivable and inventory as well as the firm's growing reliance on its suppliers for credit (accounts payable).17-2. Silsbee Manufacturing and Service Company has an appliance inventory currently valued at $16,357,422 and accounts receivable of $8,452,867. The text says that inventory loans commonly amount to 30 percent to 80 percent of the inventory's estimated market value and account-receivable based loans commonly amount to 40 to 90 percent of estimated market value.These figures suggest that the minimum size credit line available would be:Minimum-Size Credit Line Available = 0.30 x $16,357,422 + 0. 40 x $8,452,876= $4,907,227 + $3,381,147= $8,288,374.The maximum sized credit line available would be:Maximum-Size Credit Line Available = 0.80 x $16,357,422 + 0.90 x $8,452,876= $13,085,938 + $7,607,588= $20,693,526.17-3. The particular C of credit represented by each piece of information presented in this problem was as follows:a. Collateralb. Controlc. Characterd. Cashe. Capacityf. Conditionsg. Character h. Cash i. Conditionsj. Control k. Capacity l. Collateral17-4. ButelI Manufacturing has an outstanding $11 million loan with Citicenter Bank. Selected items reported to the bank by the company do indicate the possible development of a problem loan situation. For one thing, Butell's cash account has fallen sharply in the latest month after several months of a substantial uptrend and the firm's liquidity ratio of current assets to current liabilities has declined significantly in the last 3 months. Decreases in the firm's liquidity position may be signaling declining sales and/or difficulty in maintaining enough cash to meet near-term liabilities.227Another possible cause for concern centers around Butell's capital structure as its ratio of equity capital relative to debt financing is falling, indicating that creditors (including Citicenter Bank) are providing a larger share of the firm's capitalization. Thus, each creditor is becoming less well secured. However, these changes in liquidity and capital structure may only reflect normal seasonal pressures and may not be real problems for the bank, especially because other aspects of Butell's recent performance--its stock price, earnings before interest and taxes, and ROA seem to be improving.Perhaps of greater moment is the decline of sales revenue below Butell's projections. As of the latest month sales revenue reached $290 million versus a projection of $298 million. Citicenter Bank must determine the causes of this sales shortfall to see if the firm is encountering increasing resistance to sales of its product lines. However, even this trend may not be cause for alarm because sales may be so volatile in Butell's industry that few analysts put any faith in sales projections. The bank's loan officer needs to review the customer's earlier sales projections and sales revenue to determine if there is a real cause for concern.Butell has indicated a recent switch in inventory and depreciation accounting methods. Citicenter's loan officer would do well to inquire into the reasons for these changes because they may reflect an attempt by the firm to offset actual or potential future losses in some aspect of its operations.17-5. Which of the following restrictive loan covenants are affirmative or negative covenants?a. Restrictions on payment of dividends represent negative loan covenants.b. A requirement to insure selected assets is an affirmative loan covenant.c. Restrictions against taking on new debt represent negative loan covenants.d. The requirement 6f filing periodic financial statements with the bank is anaffirmative loan covenant.e. A requirement of securing bank approval before adding to a borrower's stock offixed assets is considered a negative loan covenant.f. Requiring a borrowing customer to maintain a current ratio -- a liquidity measure--no lower than 1 .5x is an affirmative loan covenant.g. The stipulation that prior bank approval of a proposed merger must be obtained is anegative loan covenant.16-6. The particular C of lending which applies to each loan factor is listed below:Character Capacity Cash Collateral Conditions ControlCredit rating Corporateresolution LiquidreservesInsurancecoverageCompetitiveclimate forcustomersproductAdequatedocumentationExperience of other lenders Driver’slicenseExpensecontrolAssetspecializationExpectedmarket shareWritten loanpolicyPurpose of Social Inventory Guarantees Business Changes in228loan security card turnover andwarrantees cycle accountingstandardsPayment record History offirmProjectedcash flowsAssetliquidationPerformanceof comparablefirmsBanking lawsand regulationsCustomeridentityPrice earningsratioChanges intechnologyIndustryoutlookPartnershipagreementCoverageratiosObsolescence InflationoutlookManagementqualityLiens Wages in thelabor marketLeverage FuturefinancingneedsEconomists’ForecastsAccountsReceivablesTurnoverAccountsPayableTurnoverWeb Site Problems1. If you wanted to find out about regulations applying to bank lending where would you look on the web? Why do you think this area has become so important lately?Most of the banking regulatory agencies have information about lending regulations. One place that I found that listed the latest regulations on the web was the Kansas City Federal Reserve at /bs&s/finalreg/regsmain.htm. I think bank lending has become important recently for several reasons. One reason is that the economy has been doing so well and many individuals and businesses have increased their borrowing. However, since the economy is starting to cool this area will continue to be important as bankruptcies and loan losses rise.2. Are you interested in becoming a loan officer? A credit analyst? Where on the world wide web could you find information on new job listings in banking?There are many places that list banking jobs. One place that I found after doing a search was /. On this web site you could search by state or look at all states. People can post resumes on this site as well as look for a job or look for a potential employee.3. Suppose you were hired as a consultant by a bank’s loan department to look at their controls to minimize loan risk. You know the bank is concerned that their principal government supervisory agency is going to take a hard look shortly at how their loan department is managed and the risks in its loan portfolio. Where on the Internet could you look to find some guideline on how to control and manage bank credit risk? List two or three suggestions for credit risk control that you found at the web site or sites you investigated.229The Basel Committee has a list of publications which include several documents related to improving a bank’s credit risk management at /bcbs/publ.htm. Many of these publications provide detailed advice as to how to deal with credit risk. For example in the Basel Committee’s publication of Principles for the Management of Credit Risk, they mention the areas that this publicat ion can help with. This publication of the Basel Committee states “The sound practices set out in this document specifically address the following areas: (i) establishing an appropriate credit risk environment; (ii) operating under a sound credit-granting process; (iii) maintaining an appropriate credit administration, measurement and monitoring process; and (iv) ensuring adequate controls over credit risk. This publication can be read for more specific information about each of these areas. This should help the consultant address these issues for their bank.230。

CHAPTER 6ASSET/LIABILITY MANAGEMENT: DETERMINING AND MEASURING INTEREST RATES AND CONTROLLING A BANK’S INTEREST-SENSITIVE GAP Goals of This Chapter: To learn how to measure a bank's exposure to interest-rate risk and how to reduce that risk exposure through coordinated management of bank assets and liabilities.Key Terms Presented In This ChapterAsset-liability Management Yield to Maturity (YTM)Asset Management Bank Discount RateLiability Management Net Interest MarginFunds Management Interest-Sensitive Gap ManagementInterest Rate RiskChapter OutlineI. Introduction: The Necessity for Coordinating Bank Asset and Liability ManagementDecisionsII. Asset/Liability Management StrategiesA. Asset Management StrategyB. Liability Management StrategyC. Funds Management StrategyIll. Interest Rate Risk: One of the Banker's Greatest ChallengesA. Nature of Interest-Rate RiskB. Forces Determining Interest RatesC. The Measurement of Interest Rates1. Yield to Maturity2. Bank Discount RateD. The Components of Interest RatesE. Bankers' Response to Interest Rate RiskIV. One of the Goals of Interest-Rate HedgingA. The Net Interest MarginB. Interest-Sensitive Gap Management1. Asset-Sensitive Position2. Liability-Sensitive Position3. Calculation of a Bank's Interest-Sensitive Gap4. Impact of Changing Interest Rates on the Gap5. Decisions that need to be Made Concerning Gap Management6. Computer Techniques for Managing Gap7. Cumulative Gap8. Strategies in Gap Management9. Limitations of Interest-Sensitive Gap Management10. Weighted Interest-Sensitive GapV. Summary of the ChapterConcept Checks6-1. What do the following terms mean: Asset management? Liability management? Funds management?Asset management refers to a banking strategy where management has control over the allocation of bank assets but believes the bank's sources of funds (principally deposits) are outside its control. Liability management is a strategy of control over bank liabilities by varying interest rates offered on borrowed funds. Funds management combines both asset and liability management approaches into a balanced liquidity management strategy.6-2. What factors have motivated banks to develop funds management techniques in recent years?The necessity to find new sources of funds in the 1970s and the risk management problems encountered with troubled loans and volatile interest rates in the 1970s and 1980s led to the concept of planning and control over both sides of a bank's balance sheet -- the essence of funds management.6-3. What forces cause interest rates to change? What kinds of risk do bankers face when interest rates change?Interest rates are determined, not by individual banks, but by the collective borrowing and lending decisions of thousands of participants in the money and capital markets. They are also impacted by changing perceptions of risk by participants in the money and capital markets, especially the risk of borrower default, liquidity risk, price risk, reinvestment risk, inflation risk, term or maturity risk, marketability risk, and call risk.Bankers can lose income or value no matter which way interest rates go. Rising interest rates can lead to losses on bank security instruments and on fixed-rate loans as the market values of these instruments fall. Falling interest rates will usually result in capital gains on fixed-rate securities and loans but a bank will lose income if it has more rate-sensitive assets than liabilities. Rising interest rates will also cause a loss to bank income if a bank has more rate-sensitive liabilities than rate-sensitive assets.6-4. What makes it so difficult for banks to forecast interest rate changes?Interest rates cannot be set by an individual bank or even by a group of banks; they are determined by thousands of investors trading in the credit markets. Moreover, each market rate of interest has multiple components--the risk-free interest rate plus various risk premia. A change in any of these rate components can cause interest rates to change. To consistently forecast market interest rates correctly would require bankers to correctly anticipate changes in the risk-free interest rate and in all rate components. Another important factor is the timing of the changes. To be able to take full advantage of their predictions, they also need to know when the changes will take place.6-5. What is the yield curve and why is it important for bankers to know about its shape or slope?The yield curve is a graphical description of the distribution of market interest rates by maturity of financial instrument. The slope of the yield curve determines the spread between long-term and short-term interest rates. In banking most of the long-term rates apply to loans and securities (i.e., bank assets) and most of the short-term interest rates are attached to bank deposits and money market borrowings. Thus, the shape or slope of the yield curve has a profound influence on a bank's net interest margin or spread between asset revenues and liability costs.6-6. What is it that a bank wishes to protect from adverse movements in interest rates?A bank wishes to protect both the value of bank assets and liabilities and the revenues and costs generated by both assets and liabilities from adverse movements in interest rates.6-7. What is the goal of hedging in banking?The goal of hedging in banking is to freeze the spread between asset returns and liability costs and to offset declining values on certain assets by profitable transactions so that a target rate of return is assured.6-8. First National Bank of Bannerville has posted the following financial statement entries: Interest revenues $63 millionInterest costs $42 millionTotal earning assets $700 millionThe bank's net interest margin must be:Net Interest = $63 mill. - $42 mill. = 0.03 or 3 percentMargin $700 mill.If interest revenues and interest costs double while earning assets grow by 50 percent, the net interest margin will change as follows:($63 mill. - $42 mill.) * 2 = 0.04 or 4 percent$700 mill. * (1.50)Clearly the net interest margin increases--in this case by one third.6-9. Can you explain the concept of gap management?Gap management involves determining the maturity distribution and the repricing schedule for a bank's assets and liabilities. When more assets are subject to repricing or will reach maturity in a given period than liabilities or vice versa, the bank has a GAP and is exposed to loss from adverse interest-rate movements based on the gap's size.6-10 When is a bank asset sensitive? Liability sensitive?A bank is asset sensitive when it has more interest-rate sensitive assets maturing or subject to repricing during a specific time period than rate-sensitive liabilities. A liability sensitive position, in contrast, would find the bank having more interest-rate sensitive deposits and other liabilities than rate-sensitive assets for a particular planning period.6-11. Commerce National Bank reports interest-sensitive assets of $870 million andinterest-sensitive liabilities of $625 million. Because interest-sensitive assets are larger than liabilities by $245 million the bank is asset sensitive.If interest rates rise, the bank's net interest margin should rise as asset revenues increase by more than the resulting increase in liability costs. On the other hand, if interest rates fall, the bank's net interest margin will fall as asset revenues decline faster than liability costs.6-12. First National Bank has a cumulative gap for the coming year of + $135 million and interest rates are expected to fall by two and a half percentage points. What is the expected change in First National's net interest income?ExpectedChange in = $135 million * (-0.025) = -$3.38 millionNet Interest IncomeWhat change will occur in net interest income if interest rates rise by one and a quarter percentage points?Expected Changein Net Interest = $135 million * (+0.0125) = +$1.69 millionIncome6-13 How do you measure a bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap? What is the interest-sensitivity ratio?The dollar interest-sensitive gap is measured by taking the repriceable (interest-sensitive) assets minus the repriceable (interest-sensitive) liabilitiies over some set planning period. Common planning periods include 3 months, 6 months and 1 year. The relative interest-sensitive gap is the dollar interest-sensitive gap divided by some measure of bank size (often total assets). The interest-sensitivity ratio is just the ratio of interest-sensitive assets to interest sensitive liabilities. Regardless of which measure you use, the results should be consistent. If you find a positive (negative) gap for dollar interest-sensitive gap, you should also find a positive (negative) relative interest-sensitive gap and a interest sensitivity ratio greater (less) than one.6-14 Suppose Carroll Bank and Trust reports interest-sensitive assets of $570 million and interest-sensitive liabilities of $685 million. What is the bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap and interest-sensitivity ratio?Dollar Interest-Sensitive Gap = Interest-Sensitive Assets – Interest Sensitive Liabilities= $570 - $685 = -$115Relative Gap = $ IS Gap = -$115 = -0.2018 or -20.18 percent Bank Size $570Interest-Sensitivity = Interest-Sensitive Assets =$570 = .8321 Ratio Interest-Sensitive Liabilities $6856-15 Explain the concept of weighted interest-sensitive gap. How can this concept aid bank’s real interest-sensitive gap risk exposure?Weighted interest-sensitive gap is based on the idea that not all interest rates change at the same speed. Some are more sensitive than others. Interest rates on bank assets may change more slowly than interest rates on liabilities and both of these may change at a different speed than thoseinterest rates determined in the open market. In, the weighted interest-sensitive gap methodology all interest-sensitive assets and liabilities are given a weight based on their speed (sensitivity) relative to some market interest rate. Fed Funds loans, for example, have an interest rate which is determined in the market and which would have a weight of 1. All other loans, investments and deposits would have a weight based on their speed relative to the Fed Funds rate. To determine the interest-sensitive gap, the dollar amount of each type of asset or liability would be multiplied by its weight and added to the rest of the interest-sensitive assets or liabilities. Once the weighted total of the assets and liabilities is determined, a weighted interest-sensitive gap can be determined by subtracting the interest-sensitive liabilities from the interest-sensitive assets. This weighted interest-sensitive gap should be more accurate than the unweighted interest-sensitive gap. The interest-sensitive gap may change from negative to positive or vice versa and may change significantly the interest rate strategy pursued by the bank.Problems6-1. A government bond is currently selling for $900 and pays $80 per year in interest for 5 years when it matures. If the redemption value of this bond is $1,000, what is its yield to maturity if purchased today for $900. The yield to maturity equation for this bond would be:$900 = $80(1YTM)1+ + $80(1YTM)2+ + $80(1YTM)3+ + $80(1YTM)4++ $80(1YTM)5+ + $1,000(1YTM)5+At an YTM of 10 percent the bond's price is $924.28, while at 12 percent its price becomes $864.40. Thus, the true YTM lies between 10% and 12%. To find the true YTM we use: 10% + 40.864$28.924$900$28.924$-- * 2% ≈ 10.81%6-2. Suppose the government bond described in problem #1 is held for 3 years and then the bank acquiring the bond decides to sell it at a price of $950. Can you figure out the average annual yield the bank will have earned for its 3-year investment in the bond?In this instance the yield-to-maturity equation can be modified slightly to find the correct holding-period yield that the bank would earn. Specifically,$900 = $80(1HPY)1+ + $80(1HPY)2++ $80(1HPY)3+ + $950(1HPY)3+At an HPY of 10% the bond's price becomes $912.31, while at 12% the bond's price is $868.56.The true holding period yield must be:10% + 912.31900912.31868.56--⎡⎣⎢⎤⎦⎥ x 2% ≈10.56%.6-3. U.S. Treasury bills are available for purchase this week at the following prices (based upon $100 par value) and with the indicated maturities:a. $97.25, 182 days.b. $96.50, 270 days.c. $98.75, 91 days.The discount rates and equivalent yields to maturity (bond-equivalent or coupon-equivalent yields) on each of these Treasury bills are:Discount Rates Equivalent Yields to Maturitya.(10097.25)100- * 360182 = 5.44% (365x.0544)[360(0.0544x182)]- = 19.856350.1 = 5.67% b.(10096.50)100- * 360270 = 4.67% (365x.0467)[360(.0467x270)]- = 17.046347.39 = 4.91% c. (10098.75)100- * 36091 = 4.95% (365x.0495)[360(.0495x91)]- = 18.07355.5 = 5.08%6-4. The First State Bank of Ashfork reports a net interest margin of 3.25 percent in its most recent financial report with total interest revenues of $88 million and total interest costs of $72 million. What volume of earning assets must the bank hold?The relevant formula is:Net Interest Margin = .0325 = AssetsEarning mil. $72mill. $88-Then Earning Assets = $492.31 million.Suppose the bank's interest revenues rise by 8 percent and its interest costs and earning assets increase 10 percent. What will happen to Ash Fork's net interest margin?Substituting in the correct formula we have:New Net Interest Margin = .10)million(1 $492.3.10)million(1 $72.08)(1 million $88++-+= million$541.53million $79.20million $95.04-= 0.0293 or 2.93 percent.6-5. If a bank's net interest margin, which was 2.85 percent, doubles and its total assets, which stood originally at $545 million, rise by 40 percent, what change will occur in the bank's net interest income?The correct formula is:.0285 * 2 = .4)(1*million 545$Income Interest Net +or Net Interest Income = 0.057 * $763 million= $43.49 million.6-6. The cumulative interest-rate gap of Snidal State Bank and Trust Company doubles from an initial figure of -$35 million. If market interest rates fall by 25 percent from an initial level of 6 percent, what change will occur in Snidal Bank's net interest income?The key formula here is:Change in the Bank's = Change in interest rates (in percentage points) * cumulative gap Net Interest = 0.06 * -.25 x (-$35 mill.) * 2Income = 1.05Thus, the bank's net interest income will rise by 5 percent.6-7. Given: Merchants State Bank has recorded the following financial data for the past three years (dollars in millions):Current Year Previous Year Two Years Ago Interest revenues $57 $56 $55 Interest expenses 49 42 34 Loans (Excluding nonperforming) 411 408 406 Investments 239 197 174 Total deposits 487 472 467 Money market borrowings 143 118 96 Solution:Net interest margin (NIM) = Net Interest Income/Earning Assets, whereNet Interest Income = Net Interest Revenues - Net Interest ExpensesEarning Assets = Loans + InvestmentsNIM(Current) = ($57-49)/(411 + 239) = 8/650 = 0.0123 or 1.23%NIM(previous) = ($56-42)/(408 + 197) = 14/605 = 0.0231 or 2.31%NIM(Two years ago) = ($55-34)/(406 + 174) = 21/580 = 0.0362 or 3.62%The net interest margin has been declining steadily and significantly. Probable causes include greater increases in interest expenses relative to interest income due to shifts in funding mix with greater dependence on borrowed funds (more expensive sources) relative to deposits (less expensive sources). Additionally, the mix in earning assets, with greater growth in lower yielding investment securities than in higher yielding loans, is another contributor to the steadily declining net interest margin.Management needs to reevaluate its funding strategies and its loan and investment strategies. If slower loan growth is related to external forces -- for example, a weaker economy -- then less borrowing should be considered. If the slower loan growth is more internal, then more aggressive loan management would be appropriate.6-8 The First National Bank of Wedora, California has the following interest-sensitive gaps:Coming WeekNext30 DaysNext31-90 DaysMore Than90 DaysInterest - $144 $110 $164 $184 Sensitive +29 +19 29 8 Assets = $173 $129 $193 $192 Interest - $232 $ --- $ --- $ --- Sensitive 98 84 196 35 Liabilities = 36 6 --- ---$366 $90 $196 $35 GAP - $193 + $39 - $3 + $157 Cumulative GAP - $193 - $154 - $157 $0First National has a cumulative zero gap and therefore is not vulnerable to loss if interest rates rise. It does have a positive gap in two periods--the next 30 days and more than 90 days. During these particular periods a rise in interest rates would produce a short-run gain.6-9 First National Bank of Barnett currently has the following interest-sensitive assets and liabilities on its balance sheet:Interest-Sensitive Assets Interest-Sensitive LiabilitiesFederal fund loans $65Security holdings $42 Interest-bearing deposits $185Loans and leases $230 Money-market borrowings $78What is the bank’s current interest-sensitive gap? Suppose its Federal funds loans carry an interest-rate sensitivity weight of 1.0 while its investments have a rate-sensitivity weight of 1.15 and its loans and leases display a rate-sensitivity weight of 1.35. On the liability side First National’s rate-sensitivity weight is 0.79 for interest-bearing deposits and 0.98 for itsmoney-market borrowings. Adjusted for these various interest-rate sensitivity weights, what is the bank’s weighted interest-sensitive gap? Suppose the Federal funds interest rate increases or decreases one percentage point. How will the bank’s net interest income be affecte d (a) given its current balance sheet make up and (b) reflecting its weighted balance sheet adjusted for the foregoing rate-sensitivity weights?Solution:Dollar IS Gap = ISA - ISL = ($65 + $42 + $230) - ($185 + $78) = $337 - $263 = $74 Weighted IS Gap = [(1)($65) + (1.15)(42) + (1.35)(230)] - [(.79)($185) + (.98)($78)] = $65 + $48.3 + $310.5 - $146.15 + $76.44= $423.8 - $222.59= $201.21a.) Change in Bank’s Income = IS Gap * Change in interest rates= ($74)(.01) = $.74 millionUsing the regular IS Gap, net income will change by plus or minus $740,000b.) Change in Bank’s Income = Weighted IS Gap * Change in interest rates= ($201.21)(.01) = $2.012Using the weighted IS Gap, net income will change by plus or minus $2,012,0006-10 McGraw Bank and Trust has interest-sensitive assets of $225 million and interest-sensitive liabilities of $168 million. What is the bank’s dollar interest-sensitive gap? What is McGraw’srelative interest-sensitive gap? What is the value of its interest-sensitivity ratio? Is the bank asset sensitive or liability sensitive? Under what scenario for market interest rates will the bank experience a gain in net interest income? A loss in net interest income?Dollar Interest-Sensitive Gap = ISA – ISL = $225 - $168 = $57Relative Interest-Sensitive Gap = ISA – ISL = $57 = 0.2533Bank Size $225Interest-Sensitivity Ratio = ISA = $225 = 1.3393ISL $168This bank is asset sensitive. More assets will be repriced during this time period than liabilities. This means that if interest rates rise, the interest earned on assets will rise relative to the interest paid on liabilities and net interest margin will rise. However, if interest rates fall, interest earned on assets will fall more than interest paid on liabilities and net interest margin will fall.Web Site Problems1. Suppose you want to know what types of banks make the greatest use of asset-liability management tools and what their biggest ALM problems are? Where would you go on the web to try to get answers to these questions?Almost all banks are required by regulators to have some kind of ALM management in place. These techniques can be as simple as the interest sensitive gap discussion in this chapter or the duration gap management in the next chapter. However, there are many consulting firms out there that have developed specific models for managing ALM. One way to see what is out there is to do a search on bank ALM management and see some of the sites that are out there. These sites range from sites for the consulting firms to more general sites that provide a good definition and description of ALM management. Two sources that are available at this time for general information on asset-liability management are/glossaryassetliabilitymanagement.htm and/Products/nccb_asset.htm. However if you want a good discussion of specific models and the problems people are having with ALM management, one good source appears to be /. This site has several discussion groups on various ALM topics.2. If a new web model to apply ALM techniques to a bank’s risk exposure is developed, at what web site are you most likely to find a discussion of that new ALM model?The best place to get information about a new ALM model would be the/ site mentioned above. If a promising new model were developed it would be sure to show up in the discussion groups mentioned above.3. If you need guidance on how to prepare bank forecasts and measure risk as part of a bank’s ALM activities which web site could be most helpful to you?If you are not willing to go to a consultant about how to develop bank forecasts and measure risk, the / web site would probably be the most helpful site. There are many discussions there about how to deal with specific measurement issues and how to find information to determine the risk of your bank compared to peer institutions.85。

CHAPTER 21PRICING CONSUMER AND REAL ESTATE LOANSGoal of the Chapter: To learn how consumer and real estate loan rates may be determined and to see the options a bank loan officer has today in pricing loans to individuals and families.Key Terms Presented in This ChapterAnnual percentage rate (APR) Compensating deposit balanceSimple interest Fixed rate mortgages (FRMs)Discount rate method Adjustable-rate mortgages (ARMs)Add-on method PointsRule of 78sChapter OutlineI. Introduction: The Challenge of Pricing Consumer and Real Estate LoansII. The Interest Rate Attached to Nonresidential Consumer LoansA. Cost-Plus Loan Rate ModelB. Annual Percentage RateC. Simple InterestD. The Discount Rate MethodE. The Add-On Loan Rate MethodF. Rule of 78sG. Compensating Balance RequirementsIII. Use of Variable Rates on Consumer LoansIV.Interest Rates on Home Mortgage LoansA.Fixed Rated MortgagesB.Variable Rate MortgagesC.Charging the Customer Mortgage PointsV Summary of the ChapterConcept Checks21-1. What options does a bank loan officer have in pricing consumer loansMost consumer loans, like most business loans, are priced off some base or cost rate, with a profit margin and compensation for risk added on. The rate on a consumer loan may be figured from the cost-plus model or the base-rate model. Most installment and lump-sum payment loans are made with fixed interest rates. However, due to the volatility of interest rates in the 1 970’s and 1980's, a greater number of floating rate consumer loans have appeared.21-2. Suppose a customer is offered a loan at a discount rate of 8 percent and pays $75 in interest at the beginning of the term of the loan. What net amount of credit did this customer receive?The relevant formula is:Then the net amount of credit received must be $75/.08 or $937.50.Suppose you are told that the effective rate on this loan is 12 percent. What is the average loan amount the customer had available during the year?In this instance:Interest Owed $75Effective loan ratio = Average Loan Amount During the Year= x = 0.12Then the average loan amount during the year must be:x = $75 = $625.0.1221-3. See if you can determine what APR you are charging a consumer loan customer using the tables inside the back cover of this text if you grant the customer a loan for 5 (payable in monthly installments) years which carries a finance charge per $100 of $42.74.The terms quoted mean that the customer must pay an APR of 15 percent according to the Annual Percentage Rate Table in the tables inside the text's back cover.21-4. A customer is quoted an APR of 16 percent on a loan of $10,000, lasting for 4 and payable in monthly installments years.According to the Table in Appendix B the Finance charge per $100 of amount financed must be $36.03 or $36.03 *100 = $3603 in total finance charges.Problems21-1. William Crenshaw, who owns a small retail business, has requested a personal loan of $4500 for one year. He asks for a lump-sum loan with no installment payments; the loan, as requested, will be repaid at the end of the year plus interest. However, the bank wants monthly payments at an annual interest rate of 13 percent.If Crenshaw had received the loan under his preferred terms he would pay:Discount Interest Owed $75 loan rate = Net Amount = x = 0.08 of Credit ReceivedInterest Owed = Principal *Rate * Time = $4500 * 0.13 * 1 = $585.On the other hand, if the loan is repaid in 12 equal monthly installments (of $375 apiece) theinterest owed would be:First Month: $4500 x 0.13 x 1/12 = $48.75Second Month: $4125 x 0.13 x 1/12 = $44.69Third Month: $3750 x 0.13 x 1/12 = $40.62Fourth Month: $3375 x 0.13 x 1/12 = $36.56Fifth Month: $3000 x 0.13 x 1/12 = $32.50Sixth Month: $2625 x 0.13 x 1/12 = $28.44Seventh Month: $2250 x 0.13 x 1/12 =$24.37Eighth Month: $1875 x 0.13 x 1/12 = $20.31Ninth Month: $1500 x 0.13 x 1/12 = $16.25Tenth Month: $1125 x O.13 x 1/12 = $12.19Eleventh Month: $750 x 0.13 x 1/12 = $ 8.12Twelfth Month: $375 x 0.13 x 1/12 = $ 4.06Total Interest Paid $316.86In straight dollar terms it appears that Crenshaw pays less interest ($316.86 versus $585) with the loan paid back in monthly installments rather than repayment of a lump sum at the end. However, because Crenshaw has use of only about half the loan's balance (or $2250) on average over the year when repayment is in 12 equal installments he pays an approximate effective interest rate of $316.86/$2250 or 14.08% with the installment loan which significantly exceeds the loan contract rate of 13% under the lump-sum loan contract. (Note: We emphasize the word approximate.)As an alternative solution to this problem, we could prepare an amortization schedule for this loan, which would look like the following:For a $4,500 loan with a 13% annual interest rate and repayment on a monthly basis, the payment each month would be $401.85.Interest PrincipalBeginning Balance Payment Portion Portion Ending Balance$4,500.00 $401.85 $48.75 $351.10 $4,148.90$4,148.90 $401.85 $44.95 $356.90 $3,792.00$3,792.00 $401.85 $41.08 $360.77 $3,431.23$3,431.23 $401.85 $37.17 $364.68 $3,066.55$3,066.55 $401.85 $33.22 $368.63 $2,697.92$2,697.92 $401.85 $29.23 $372.62 $2,523.30$2,523.30 $401.85 $25.19 $376.66 $2,146.64$2,146.64 $401.85 $23.26 $378.59 $1,768.05$1,768.05 $401.85 $19.15 $382.70 $1,385.35$1,385.35 $401.85 $15.01 $386.84 $ 998.51$ 998.51 $401.85 $10.82 $391.03 $ 607.48$ 607.48 $401.85 $ 6.58 $395.27 $ 212.21$ 212.21 $214.51* $ 2.30 $212.21 $ 0.00Total Interest Paid $336.71* The final payment will equal the balance remaining before the last payment plus the interest on that balance. In most, if not all cases, this payment will be different from the regular payment.21-2. Frank Petrel plans to start an auto repair shop and has requested a $10,000 new-venture loan. The bank wishes to make a discount-rate loan at prime plus 2 percentage points or 14.5 percent.This means Petrel will receive net loan proceeds of $10,000 - $10,000 * 0.145 = $8550.Using this net figure as a base, Petrel will pay an effective interest rate of$1450 / $8550 or 16.96%.Alternative Scenario 1:Would Mr. Petrel be better off if he were able to get a $10,000 personal loan with a 12.5% add-on rate for one year? Why or why not?Solution:In this instance, Petrel would have to repay the $10,000 plus $10,000 x 0.125 in interest or $1250. He would be asked to make monthly installment payments of ($10,000 + $1250) / 12or $937.50 per month for 12 months. Because Petrel would have only $5,000 in borrowed funds on average to use over a 12-month period, the approximate effective interest rate he would pay under the add-on rate method would be $1250 / $5000 or about 25 percent. (A financial calculator solution gives us an effective rate of 22.32%.) Clearly this effective rate would be much higher than the interest rate on the discount business loan.Alternative Scenario 2:What happens to the effective rate on Mr. Petrel's loan if the prime rate changes to 10 percent?Solution:The rate on Mr. Petrel's discounted loan would be 12 percent (10% + 2%).The net proceeds from the loan would, therefore, be$10,000 - ($10,000 * .12) = $10,000 - $1,200 = $8,800.The effective cost of the loan would then be$1,200 / $8,800 = .1364 or 13.64%. (Declines from 16.96%)Alternative Scenario 3:How does the effective rate on this loan change if the prime rate increases to 13 percent?Solution:The rate on Mr. Petrel's discounted loan would be 15 percent (13% + 2%).The net proceeds from the loan would be$10,000 - ($10,000 *.15) = $10,000 - $1,500 = $8,500.The effective cost of the loan would then be$1,500 / $8,500 = .1765 or 17.65%. (Increases from 16.96%)Alternative Scenario 4:Suppose Mr. Petrel is able to raise personal equity to put into the new business in the amount of $2,500 from his accumulated savings and from a small loan extended by a close friend. The bank will then lend him just $7,500 at a discount rate of prime plus one-and-one-half percentage points (currently prime is 12 percent). What is the effective interest rate on the loan in this case?Solution:The rate on Mr. Petrel's discounted loan would be 13.5 percent (12% + 1.5%).The net proceeds from the loan would be$7,500 - ($7,500 *.135) = $7,500- $1,012.50 = $6,487.50.The effective cost of the loan would then be$1,012.50 / $6,487.50 = .1561 or 15.61%.21-3. The Robbins family has asked for a 20-year mortgage in the amount of $60,000 to purchase a home. At a 10 percent loan rate, what is the required monthly payment?Solution:$579.01 1- 0.10/12) 1(0.10/12) (1 * 0.10/12 * 60,000$12*2012*20=++Because of the computational problems in the above formula, an easier approach is to use the tables inside the text's back cover to find the:Total Finance Charge Per $100 Financed = $131.61Total Finance Charge on the Loan Amount Requested =($60,000 / $100) x $131.61 = $78,966Required Monthly Payment = Total Finance Charge + Loan AmountNumber of Payments= [$78,966 + $60,000] / 240 = $ 579.03Alternative Scenario 1:If the Robbinses' home mortgage loan rate is adjustable and rises to 11 percent at the beginning of the second year of the loan, what will the required monthly payment be?Solution:$628.48 1- 0.11/12) 1(0.11/12) (1 * 0.11/12 * 000,60$12*1912*19=++Note that we assume the first-year loan rate is 10 percent and then rises to 11 percent for theremaining 19 years (or 228 months) of the 20 year loan. Also, for ease of calculations, we assume that there has been no significant reduction in the principal amount of the loan. In reality, the Robbins will have reduced the principal to approximately $59,000 at the end of the first year. Interpolation in the tables inside the text's back cover for an 11percent loan for 228 remaining monthly payments gives:Total Finance Usage Per $100 Financed = $104.59) - ($147.73 * 180- 240180-228 104.59$+= $104.59 + $34.51 = $139.10Total Finance Charge on Remainder of Loan = ($60,000/$100) * $139.10 = $83,460Required Monthly Payment = $59,000)on ($618 $629.21 228$60,000 $83,460=+Alternative Scenario 2:Suppose the rate on the Robbinses' home mortgage declines to 9 percent at the beginning of the loan's second year. What happens to the required monthly payment?Solution:Note: Since Table 3 in the Appendix does not have 9 percent, we will calculate the required monthly payment using a financial calculator.Required Monthly Payment for $60,000 at 9 percent (.75% per month) for 19 years/(228 months)= $550.14 ($540.97 for $59,000)Alternative Scenario 3:Would the Robbins family be better off under all of the above scenarios if they took out a 15-year mortgage instead of a 20-year mortgage? What would they gain and what would they give up with this mortgage loan of a shorter maturity?Solution:The answer to this question depends upon the Robbinses' ability to make the higher payments that would be required on a shorter term mortgage.In each case, the Robbinses would have a higher monthly payment; however, their total payments would be less, their home would be paid for in less time, and they would accumulate equity in the home more quickly.21-4. James Alters received a $1500 loan last month with the intention of repaying the loan in 12 months. However, Alters now discovers he has the cash to repay the loan right now after making just one payment. What percentage of the total finance charge is Alters entitled toreceive as a rebate and what percentage of the loan's finance charge is the bank entitled to keep?The Rule of 78s applies here. James Alters is entitled to receive back as an interest rebate:percent 63.33 = 100x 78671211...2111 + . . . + 2 + 1=++++of the total finance charges on the loan: the lender is entitled to keep 36.67 percent of the finance charges associated with this loan.21-5. Constance Homer asks for a $10,000 loan. Slidell Corners State Bank agrees to give her immediate use of $9400 and to deduct $600 in interest up front. The effective discount rate on this loan is:6.38% $9400$600 Received Credit of Amount Net Owed Interest ==21-6. The Lindal family wants to borrow $2500 for a year to finance a European vacation. If the family must pay a 12 percent add-on loan rate, how much in interest will they pay?Interest Paid = Loan principal * Loan Rate = $2500 * 0.12 = $300What is the amount of each required monthly payment?Amount of Monthly Payment = $233.33 12$300 $2500=+What is the effective loan rate in this case?Effective Loan Rate = 24%or 0.24 $1250$300 Year the During Amount Average Owed Interest ==21-7. The APR for Joseph Nework's $10,000, 3-year automobile loan can be determined from the annual percentage rate table for monthly payment plans inside the back cover of the text.If Joseph must pay $2217 in total finance charges over 36 months, the table tells us he is paying100$2217$ or $22.17 per $100 or an APR of 13.50 percent.21-8. If Kyle Ellisor is to receive a 30-year mortgage loan in the amount of $225,000 at an APR of 14%, he will pay finance charges of $326.55 per $100 borrowed over the life of this loan (see the annual percentage rate tables inside the back cover of the text). Therefore, he will pay in total finance charges$100$225,00* $326.55 = $734,737.50.21-9. The Quisling family asks to borrow $1800 at 11 percent simple interest for one year. It will pay the following interest bill:I = P * r * t = $1800 * 0.11 * l = $198Therefore, they must pay back a total of $1998 in principal and interest.21-10. Mary Perland will pay the following in interest on her $1200 loan for one year at 8 percent simple interest:First Quarter: I = $1200 x 0.08 x 1/4 = $24Second Quarter: I = $900 x 0.08 x 1/4 = $18Third Quarter: I = $600 x 0.08 x 1/4 = $12Fourth Quarter: I = $300 x 0.08 x 1/4 = $6Total Interest owed = $24 + $18 + $12 + $6 = $60.If Mary were offered the $1200 loan at a 6 percent simple interest rate and the loan is paid in lump sum at maturity, she will pay total interest of:$1200 * 0.06 x 1 = $72.She clearly would pay more in interest but would have the full $1200 available for her use for one year.21-11. The Tielman family has asked for a $2500 loan for one year to complete home repairs. First National Bank assesses an 8 percent rate of interest and requires a $500 minimum compensating balance left in a deposit. The effective interest rate on this loan must be:10%or 0.10 $2000$200 $500 - $25000.08 * $2500 Amount Loan Net Owed Interest ===Actually 10 percent is the minimum loan rate. If the Tielman's keep a deposit balance larger than the minimum $500 required the effective loan rate will climb higher.21-12. Bill and Sue Rogers are negotiating with their local bank for a home mortgage loan in the amount of $80,000. The bank levies an up-front fee of 1.5 points on this loan. The dollar amount of points they must pay upfront is:Dollar Value of Points = $80,000 * 0.015 = $1200.The Rogers will have available for their use only $78,800 or $80,000 less $1200.21-13 As a loan officer you quote Mr. and Mrs. Coldner an APR of 14 percent on a two year loan to remodel their kitchen. The loan amount is $6000. Using the APR tables inside the back cover of the text determine the total finance charge on this loan.$913.80 15.23 x $100$6000= is the total amount in finance charges the Coldner’s wi ll pay.If they insist on a 12 percent loan$778.80 12.98 x $100$6000= is the total amount in finance charges the Coldner’s will payThe bank will lose $13521-14. Dresden bank’s personal loan department quotes Mr. Angelo a finance charge of $6.06 for each $100 in credit the bank is willing to extend to him for a year (assuming the balance of the loan will be paid off in 12 equal installments). What APR is Mr. Angelo being quoted by the bank? How much would he save per $100 borrowed if he could retire the loan in 6 months?The APR on this loan is 11 percent. If he could retire the loan in 6 months the finance charges per $100 would be $3.23. He would save $2.83 per $100 borrowed.21-15. Would you expect loan interest rates on new cars to be higher than on used cars? Why or why not? Would you expect a personal loan to carry a higher interest rate than an automobile loan? Why or why not?I would expect the interest rate on the new car loan to less than the interest rate on a used car loan. In general, newer cars are easier to sell than used cars and the bank would stand a better chance of getting their money back in the event of default on the loan. However, this may depend on the make and model of the car and the market for used cars.I would expect the interest rate on the personal loan to be higher than the interest rate on the automobile loan. In the personal loan there may not be any specific and identifiable assets pledged as collateral on the loan. In the case of the automobile loan the car purchased is generally used as collateral. In the event of default it may be more difficult for the bank to get their funds back on the personal loan.Web Site Problems1. What methods are in greatest demand today to aid in the pricing of consumer loans and real estate (particularly housing) credit? How can the world wide web be of help in this area? What web sites look especially good?I believe that the most common method for calculating consumer loan interest rates and payments is the APR. Since this is the method that banks must report by law, it is now the most often used method for calculating payments on consumer loans. The web can help because there are a number of places on the web where can find information about prevailing interest rates on consumer loans and a number of places that will calculate your payments based on a particular APR and amount borrowed. For examplehttp://moneysense.quicken.ca/eng/auto/calculators/payments/index.phtml is a place to calculate automobile loans. There are many other places on the web where you can make the same calculation.2. Why is credit scoring useful in helping to price consumer and home mortgage loans? Where can you go to get good credit-scoring information?The demand for consumer loans has expanded exponentially in recent years. As a result the need for a quick and reliable way to determine whether an individual will pay back a loan was needed. This led to the development of credit scoring. There are many web sites that discuss credit scoring and the advantages and disadvantages of these models. One web site that I found is/article1.htm. This web site is good because it does give a history of why credit scoring models have developed and a very basic description of how it works and the advantages and disadvantages. In addition there are several web sites where you can get an estimate of your credit score.3. Why is regulation so important in the personal loan area? How can you use the web to stay abreast of rule changes in the consumer loan field?Regulations are needed in this important field because it is very easy to take advantage ofill-informed individuals by charging them excessive interest rates and fees. Because of the changing technology and increased consumer demand for loans there have been a number of changes in regulations for consumer lending in recent years and changes will continue to be made in the future. There are a number of sites out on the web to help individuals keep up with these changes. One place to check is with the regulatory agencies overseeing banks (OCC, FDIC, FRS) as these agencies regularly post updates to the laws. In addition, as a banker there are several web sites that advertise seminars and classes on consumer lending which would include a discussion of the latest laws and regulations in this important area. One web site that lists several classes in this area is the web site of the American Bankers Association (ABA) at/Conferences+and+Education/onlinecourse8.htm.。

CHAPTER 19PRICING BUSINESS LOANSGoal of This Chapter: To explore different methods used by bankers today to price business loans and to evaluate the strengths and weaknesses of these pricing methods for achieving a bank's goals.Key Terms Presented in This ChapterCost-plus loan pricing Below-prime pricingPrice leadership Cap ratesPrime rate Customer profitability analysisLIBORChapter OutlineI. Introduction: The Challenge of Trying to Correctly Price Business Loans in a HighlyCompetitive MarketII. The Cost-Plus Loan Pricing MethodIll. The Price Leadership ModelA. Prime or Base Rate PricingB. Loan Risk and the MarkupC. Prime-Plus versus Times Prime PricingD. LIBOR-based Loan PricingE. Below-Prime Market Pricing (The Markup Model)F. Loans Bearing Maximum Interest Rates (Caps)IV. Customer Profitability AnalysisA. The Basic FormulaB. A Numerical ExampleC. Earnings Credit for Customer DepositsD. The Future of Customer Profitability AnalysisVI. Summary of the ChapterConcept Checks19-1. What methods are in use today to price business loans?The following methods are in use today to price business loans:a. Cost-plus pricing d. CAP rateb. Price leadership pricing model e. Customer Profitability Analysisc. Markup market-pricing modelCost-plus-profit pricing requires the bank to estimate the total cost involved in making aloan and then adds to that cost estimate a small margin for profit. The price-leadership model, on the other hand, bases the loan rate upon a national or international rate (such as prime or LIBOR) posted by major banks and then adds a small increment on top for profit or risk. The markup model prices a loan on the basis of cost plus a risk premium added to those loans with greater credit risk and/or longer term loans that have greater term risk.CAP rates specify a maximum rate that a borrower can be assessed, thus limiting a borrower's interest-rate risk. Customer profitability analysis looks at all the revenues and costs involved in serving a customer and then requires the bank to calculate the net rate of return from this particular customer.19-2. The loan rate quoted for this $10 million corporate loan would be:Loan Rate = 4 percent Loan Funds Cost + .5 percent Non-funds Operating Cost+ .375 percent default risk premium+ .625 percent term risk premium+ .25 percent profit margin= 5.75 percentBased on a $10 million loan this customer will pay in interest each year:$10,000,000*.0575 = $575,000.19-3. What are the principal strengths and weaknesses of the loan-pricing methods in use today?a. Cost-plus pricingStrength: considers the cost of raising loanable funds and operating costs of running the bank.Weaknesses: banks must know what their costs are in order to consistently makeprofitable, correctly priced loans; gives little regard to competition from other lenders.b. Price leadership pricing modelStrength: considers competition from other lenders, allows for a risk premium to be added to the base or prime rate.Weakness: does not consider the marginal cost of raising loanable funds.c. Markup market-pricing modelStrength: allows banks to compete more aggressively with the commercial paper market.Weakness: narrow margins (markups) on loans.d. CAP rateStrength: is another service option that a bank may offer its customers for a specific fee.Weakness: a prolonged period of high interest rates will effectively transfer the risk offluctuating interest rates from borrower to lender.e. Customer profitability analysisStrength: takes the whole customer relationship into account when pricing each loan request.Weakness: must consider revenues and expenses from all of the bank's dealings with the customer.19-4. What is customer profitability analysis?Customer profitability analysis looks at all the revenues and costs involved in serving a customer and then requires the bank to calculate the net rate of return from all the services the bank sells to this particular customer.Problems19-1. The expected revenues and costs from continuing the present relationship between Enterprise National Bank and USF Corporation were given in this problem and the reader is asked to estimate the expected net rate of return if the bank renews its loan to USF.The total of expected revenues and expected costs is:Expected Revenues Expected CostsInterest Revenue $ 1,100,000 Deposit Interest $ 25,000 Commitment Fees 100,000 Cost of Other Funds Raised 975,000 Deposit Service 4,500 Wire Transfer Costs 1,300 (Maintenance) Fees Loan Processing Costs 12,400 Wire Transfer Fees 3,500 Record keeping Expenses 4,500 Agency Fees 8,800 Account Activity Cost 19,000 Total Expected $1 216,800 Total Expected Costs $ 1,037,200 RevenuesGiven: Total Expected Revenues = $1,216,800Total Expected Costs = $1,037,200Net Revenue = $1,216,800 - $1,037,200 = $179,600Net Funds Loaned = $10,000,000 - $2,125,000 = $7,875,000Expected Net Rate of Return = $179,600/ $7,875,000 = .0228 or 2.28%Because the estimated net rate of return is positive, the bank should strongly consider approving the loan as requested because the bank can earn a premium over its costs.If you decide to turn down this request, under what assumptions regarding revenues, expenses, and customer-maintained deposit balances would you make this loan?An initial reaction might be to increase loan revenues by raising the interest rate on the loan or increasing the loan commitment fee. Depending on the customer's relationship with the bank and with other banks, this may prove to be extremely difficult. Initially, it was assumed that the customer would draw down the entire line of credit, that is, borrow the full $10,000,000. If the customer were to borrow less than the full amount, the cost of funds raised to support this loan could be reduced, increasing the net revenue from the loan. Relative to expenses, it would be more likely that some adjustment in the expenses associated with the relationship would be more appropriate. For example, a careful examination of the relationship activities could allow for a revision of estimated costs incurred by the bank to manage the various aspects of the relationship. As far as the customer-maintained balances are concerned, there could be an opportunity to revise these estimates upward, making the net funds loaned smaller and the expected net rate of return greater.Alternative Scenario 1:Given: Prime rate drops from 10% to 8%. No change in interest costs.Solution:Interest Revenue = 9% x $10,000,000 = $900,000Change in Interest Revenue = $900,000 - $1,100,000 = -$200,000Net Revenue = [$1,216,800 - $200,000] - $1,037,200 = -$20,400Since the expected net revenues are now negative, the estimated net rate of return will be negative (-$20,400 / 7,875,000 = - 0.26%). With this negative expected net rate of return, the bank should carefully review the relationship. If this is a long, very good relationship, the bank should consider making the loan; however, there should be further negotiations to insure the profitability of the relationship. This might include restructuring the deposit relationship.Alternative Scenario 2:Given: Required Rate on Time Deposit = 9.25% (up from 9%)Cost of Other Funds Raised = $1,065,000 (up from $975,000)Prime Rate = 9.5% (down from 10%)Solution:Interest revenue = 10.5% x $ 10,000,000 = $1,050,000Change in Interest Revenue = $1,050,000 - $1,100,000 = -$50,000Add'I Interest Expense (Time Deposit) = $25,695 - $25,000 = $695Add'I Cost of Other Funds = $1,065,000 - $975,000 = $90,000 Additional Funding Costs $90,695Net Revenue = [$1,216,800 - $50,000] - [$1,037,200 + $90,695]= $1,166,800- $1,127,895 = $38,905Since the net revenue under these conditions is positive ($ 38,905), the bank should make the loan. Alternative Scenario 3:Given: All revenues, except interest revenue, and costs held constant.Solution:Break Even Revenues = $1,037,200Break Even Interest Revenue = $1,037,200 - [$100,000 + $4,500+ $3,500 + $ 8,800]= $1,037,200 - $116,800 = $920,400Break Even * $10,000,000 = $920,400Break Even = $920,400 / $10,000,000 = .092 or 9.2%Break Even = Prime Break Even + 1 = 9.2%Prime Break Even = 9.2% - 1 = 8.2%Alternative Scenario 4:Given: All costs, except interest costs, and revenues held constant.Solution: Break Even Revenues = $1,216,800Break Even Interest Costs = $1,216,800 - [$1,300 + $12,400+ 4,500 + $19,000]= $1,216,800 - $ 37,200 = $1,179,60019-2 Chilton Westover Bank has sold negotiable CDs in the amount of $6 million at a yield of 8.75% and purchased $4 million in federal funds at a rate of 8.40%. The weighted average cost of bank funds in this case would be:$ 6,000,000 * .0875 = $525,000$ 4,000,000 * .0840 = $336,000Total Interest Cost = $861,000On a $10 million loan this is an average annual interest cost of $861,000/$10,000,000 or 0.0861 which is 8.61 %. There were also $25,000 in noninterest costs or 0.25% of the loan total of $10million. With a one percent risk premium and a 0.25% minimal profit margin, the loan rate on a cost-plus basis would be:Interest Cost + Non-interest Cost + Risk Premium + Profit Margin =8.61% + 0.25% + 1.00% + 0.25% = 10.11%.Alternative Scenario 1:Given: Funding entire loan with federal funds at 8.4%.Solution:Loan rate on a cost-plus basis would be:Interest Cost + Non-interest Cost + Risk Premium + Profit Margin =8.40% + 0.25% + 1.00% + 0.25% = 9.90%The bank faces the risk that its interest cost component, the federal funds rate, which can change daily, could increase quickly and take up the "slack" in the loan rate, thereby reducing the profit margin on the loan.Alternative Scenario 2:Given: Noninterest costs unexpectedly rise to $38,000 and the customer insists on a cap of 10 percent on the rate.Solution:Profit Margin = Loan Rate – [Interest Cost + Noninterest Cost + Risk Premium]= 10.00% - [8.61% + 0.38% +1.00%]= 10.00%-9.99% = .01%The profit margin, for all intents and purposes, disappears.19-3. Englewood Bank is confronted with a $15 million loan request to fund accounts receivable and inventory for APEX Exports. The bank would prefer a floating-rate loan for 90 days at a rate of LIBOR + 0.25%. Most recently LIBOR was at 9.25%. APEX, however, wants the loan rate set1at 1.014 * LIBOR.At today’s prevailing LIBOR rate the customer's requested loan-rate formula would generate a loan interest rate of 1.014 * 9.25% = 9.38%. The bank wanted to charge a rate of 9.25% + 0.25% = 9.50%. Loan rates tend to move up and down faster with the customer's loan-rate formula than with the bank's LIBOR-plus formula. This customer appears to believe interest rates will soon decline, pulling its loan rate lower.Alternative Scenario:Given: The bank's counterproposal to Apex is LIBOR plus 0.125% with a compensating balance of $250,000.Solution:At the prevailing LIBOR rate of 9.25%, the effective rate of the counter proposal is:[9.25% + 0.125%]/[($15,000,000 - $ 250,000)/$15,000,000]= 9.375%/.9833 = 9.53%On an effective cost basis, Apex is not likely to agree to this request. However, if Apex looks only at the 9.375% rate, they might accept the request. Apex's opportunity cost of the minimum balance would come into play in accepting or rejecting the counter proposal.19-4. RJK Corporation was quoted a loan rate equal to the prevailing federal funds interest rate plus 3/8 of a percentage point (or 0.375%) . RJK wanted the loan renewed at money-market borrowing cost plus 0.25%. If the base rate is set at the federal funds rate the loan rate as requested by RJK would be:Week 1 Week 2 Week 3 Week 4 Week 5 Fed Funds 8.72% 8.80% 8.69% 8.46% 8.46% Margin 0.25% 0.25% 0.25% 0.25% 0.25% Loan Rate 8.97% 9.05% 8.94% 8.71% 8.71% Clearly the other money-market interest rates would have generated somewhat lower loan rates, especially the CD and Treasury bill rates. However, interest rates fell over the period examined, resulting in lower loan revenues for the bank. The bank would have been better off to offer its customer a fixed interest rate over the next five weeks.Alternative Scenario:Given: Bank desires to set a floor of 8%. Borrower agrees with the proposal if bank agrees to a loan rate of base rate plus 0.125%.Solution:The major risk faced by the bank is the risk that interest rates will rise along with other costs. If this occurs, increased fixed costs could erode the profit margin. Although this borrower would appear to be an excellent credit risk, increasing interest rates and inflation could result in increased default risk for the borrower over an extended period of time.Both the one-month commercial paper rate and the one-month CD rate have less volatility. Additionally, both maturities (i.e., one month) are closer to the five-week maturity of the requested loan. One might argue that either of these would be preferable, since they would maintain a higher rate in a declining interest rate environment. The one-month commercial paper rate had the lowestdecline during the five-week period, less than 2%, whereas the federal funds rate declined by approximately 3% and the CD rate declined by over 2%. If this trend were to continue over the next five-week period, the commercial paper rate would appear to be a better alternative.Web Site Problems1. What market interest rates are most widely used as base rates to price commercial loans? Where on the world wide web can you go to observe current and past levels of and changes in these market rates?After doing a search on the web, the Bloomberg site gave me the national averages for business loan rates. Their web site is /markets/rates.html. There are many other web sites out there that would also give this information or similar information. The table below lists key interest rates for business loans at the current time.Rate Current %Federal Funds 3.693 month LIBOR 3.71Prime Rate 7.002 Year AAA Industrial 4.5410 year .AAA Industrial 6.11From this information it appears that banks are most likely using the below prime market pricing (the markup) model to price their loans. These loan rates are close to the Federal Funds and LIBOR rates and are below the bank’s prime rate. Other loans to more risky customers may be priced differently.2. If you wanted to know more about the principles and procedures of business loan pricing where on the web would you go?One web site that has basic definitions for loans and may be a good place to start is/index.asp. This is the web site for Direct Loans. There are links to other sites from this one as well as frequently asked questions. A search of the web for business loan procedures may lead to other important web sites and information.。

CHAPTER 5MEASURING AND EVALUATING BANK PERFORMANCEGoal of This Chapter: To help the reader learn how to analyze and evaluate a bank's performance, especially its rate of return, efficiency, and risk exposure, from the data provided in bank financial statements.Key Terms Presented in This ChapterBank Profitability Equity MultiplierROA Credit RiskROE Liquidity RiskEfficiency Market RiskNet Interest Margin Interest-Rate RiskNoninterest Margin Earnings RiskNet Profit Margin Solvency RiskAsset Utilization UBPRChapter OutlineI. Introduction: Performance Pressures Faced by Banks TodayII. Evaluating a Bank's PerformanceA. Determining the Bank's Long-Range ObjectivesB. Maximizing The Value of the Firm: A Key Objective for Any BankC. Profitability Ratios: A Surrogate for Stock Values1. Key Profitability Ratios in Banking2. Interpreting Profitability Ratios3. Useful Profitability Formulas4. Breaking Down Equity Returns for Closer Analysis5. Break-Down Analysis of a Bank's Return on Assets6. What a Breakdown of Bank Profitability Measures Can Tell UsD. Measuring Risk in Banking1. Credit Risk2. Liquidity Risk3. Market Risk4. Interest-Rate Risk5. Earnings Risk6. Solvency (or Default) Risk7. Other Forms of Risk in Banking (Inflation Risk, Currency orExchange-Rate Risk, Political Risk, and Crime Risk)E. Other Goals in BankingIII. The Impact of Bank Size on PerformanceIV. Watching out for Size, Location and Regulatory Bias in Analyzing Bank Performance V. Using Financial Ratios and Other Analytical Tools to Track Bank Performance--The UBPR.VI. Summary of the ChapterAppendix to the Chapter - Improving Bank Performance Through Knowledge: Sources of Information for Bankers, Their Customers, and Bank RegulatorsConcept Checks5-1. Why should banks be concerned about their level of profitability and exposure to risk? Banks in the U.S. and most other countries are private businesses that must attract capital from the public to fund their operations. If profits are inadequate or if risk is excessive, they will have greater difficulty in obtaining capital and their funding costs will grow, eroding profitability. Bank stockholders, depositors, and bank examiners representing the regulatory community are all interested in the quality of bank performance. The stockholders are primarily concerned with profitability as a key factor in determining their total return from holding bank stock, while depositors (especially large corporate depositors) and examiners typically focus on bank risk exposure.5-2. What individuals or groups are likely to be interested in these aspects or dimensions of bank performance?The individuals or groups likely to be interested in bank profitability and risk include other banks lending to a particular bank, borrowers, large depositors, holders of long-term debt capital issued by banks, bank stockholders, and the regulatory community.5-3. What factors influence a bank's stock price?A bank's stock price is affected by all those factors affecting its profitability and risk exposure, particularly its rate of return on equity capital and risk to shareholder earnings. A bank can raise its stock price by creating an expectation in the minds of investors of greater earnings in the future, by lowering the bank's perceived risk exposure, or by a combination of increases in expected earnings and reduced risk.5-4. Suppose that a bank is expected to pay an annual dividend of $4 per share on its stock in the current period and dividends are expected to grow 5 percent a year every year, and the minimum required return to equity capital based on the bank's perceived level of risk is 10 percent. Can you estimate the current value of the bank's stock?In this constant dividend growth rate problem the current value of the bank's stock would be: P o = D1 / (k – g) = $4 / (0.10 – 0.05) = $80.5-5. What is return on equity capital and what aspect of bank performance is it supposed to measure?Return on equity capital is the ratio of Net Income After Taxes/Total Equity Capital. It represents the rate of return earned on the funds invested in the bank by its stockholders.5-6. Suppose a bank reports that its net after-tax income for the current year is $51 million, its assets total $1,444 million, and its liabilities amount to 926 million. What is its return on equity capital?The bank's return on equity capital should be:ROE = Net After Tax Income = $51 million = .098 or 9.8 percentEquity Capital $1,444 mill.-$926 mill.5-7. What is return on assets and why is it important in banking?Return on assets is the ratio of Net Income After Taxes/Total Assets. The rate of return secured on a bank's total assets indicates the efficiency of its management in generating net income from all of the resources (assets) committed to the institution.5-8. A bank estimates that its total revenues from all sources will amount to $155 million and its total expenses (including taxes) will equal $107 million this year. Its liabilities total $4,960 million while its equity capital amounts to $52 million. What is the bank's return on assets? Is this ROA high or low? How could you find out?The bank's return on assets would be:ROA = Net After Tax Income = $155 mill. - $107 mill. = 0.0096 or 0.96 percent Total Assets $4,960 mill. + $52 mill.The size of this bank's ROA should be compared with the ROA's of other banks similar in size and location to determine if this bank's ROA is high or low relative to the average forcomparable banks.5-9. Why do bankers pay close attention today to the net interest margin and noninterest margin? To the earnings base and spread?The net interest margin (NIM) indicates how successful the bank has been in borrowing funds from the cheapest sources and in maintaining an adequate spread between its returns on loans and security investments and the cost of its borrowed funds. If the NIM rises, loan and security income must be rising or the average cost of funds must be falling or both. A declining NIM is undesirable because the bank's interest spread is being squeezed, usually because of rising interest costs on deposits and other borrowings.In contrast, the noninterest margin reflects the bank's spread between its noninterest income (such as service fees on deposits) and its noninterest expenses (especially salaries and wages and overhead expenses). For most banks the noninterest margin is negative. Management will usually attempt to expand fee income, while controlling closely the growth of noninterest expenses in order to make a negative noninterest margin as least negative as possible.The earnings base indicates the proportion of the bank's earning assets (loans, leases, and investments) relative to its total assets. As competition increases, greater pressure is placed on the bank's management to maintain the quality and quantity of these earning assets. Additionally, the bank's managers typically will shift some of their emphasis to increasing noninterest income generated by fees.The earnings spread measures the effectiveness of the bank's intermediation function of borrowing and lending money, which, of course, is the bank's primary way of generating earnings. As competition increases, the spread between the average yields on assets and the average cost of liabilities will be squeezed, forcing the bank's management to search for alternative sources of income, such as fees from various services the bank offers.5-10. Suppose a banker tells you that his bank in the year just completed had total interest expenses on all borrowings of $12 million and noninterest expense of $5 million, while interest income from earning assets totaled $16 million and noninterest revenues added to a total of $2 million. Suppose further that assets amounted to $480 million of which earning assets represented 65 percent of total assets, while total interest-bearing liabilities amounted to 55 percent of the bank's total assets. See if you can determine this bank's net interest and noninterest margins and its earnings base and earnings spread for the most recent year.The bank's net interest and noninterest margins must be:Net Interest = $16 mill. - $12 mill. Noninterest = $2 mill. - $5 mill.Margin $480 mill. Margin $480 mill.=.00833 = -.00625 The bank's earnings spread and earnings base are:Earnings = $16 mill. - $12 mill.Spread $480 mill * 0.85 $480 mill. * 0.75= .0392 -.0333Earnings Base = $480 mill. - $480 mill. * 0.15 = 0.85 or 85 percent$480 mill.5-11. What are the principal components of ROE and what do each of these components measure?The principal components of ROE are:a. The net profit margin or net after-tax income to operating revenues which reflects theeffectiveness of a bank's expense control program;b. The degree of asset utilization or ratio of operating revenues to total assets which measures the effectiveness of managing the bank's assets, especially the loan portfolio; and,c. The equity multiplier or ratio of total assets to total equity capital which measures a bank's use of leverage in funding its operations.5-12. If a bank has an ROA of 0.80 percent and an equity multiplier of 12x what is its ROE? Suppose this bank's ROA falls to 0.60 percent. What size equity multiplier must it have to hold its ROE unchanged?The bank's ROE is:ROE = 0.80 percent *12 = 9.60 percent.If ROA falls to 0.60 percent, the bank's ROE and equity multiplier can be determined from:ROE = 9.60% = 0.60 percent * Equity MultiplierEquity Multiplier = 9.60 percent = 16x.0.60 percent5-13. Suppose a bank reports net income after taxes of $12, before-tax net income of $15,operating revenues of $100, assets of $600, and $50 in equity capital. What is the bank's ROE? Tax-management efficiency indicator? Expense control efficiency indicator? Asset management efficiency indicator? Funds management efficiency indicator?The bank's ROE must be:ROE = 50$12$ = 0.24 or 24 percentIts tax-management, expense control, asset management, and funds management efficiencyindicators are:Tax Management = $12 Expense Control = $15Efficiency indicator $15 Efficiency Indicator $100= .8 or 80 percent =.15 or 15 percentAsset Management = $100 Funds Management = $600Efficiency Indicator $600 Efficiency Indicator $50= 0.1666 or 16.67 percent = 12 x5-14. What are the most important components of ROA and what aspects of bank performance do they reflect?The principal components of ROA are:a. Total Interest Income Less Total Interest Expense divided by Total Assets, measuring a bank's success at intermediating funds between borrowers and lenders;b. Provision for Loan Losses divided by Total Assets which measures management's ability to control loan losses and manage a bank's tax exposure;c. Noninterest Income less Noninterest Expenses divided by Total Assets, which indicates the ability of management to control salaries and wages and other noninterest costs and generate tee income;d. Net Income Before Taxes divided by Total Assets, which measures operating efficiency and expense control; ande. Applicable Taxes divided by Total Assets, which is an index of tax management effectiveness.5-15. If a bank has a net interest margin of 2.50%, a noninterest margin of -1.85%, and a ratio of provision for loan losses, taxes, security gains, and extraordinary items of -0.47%, what is its ROA?The bank's ROA must be:ROA = 2.50 percent - 1.85 percent - 0.47 percent = 0.18 percent5-16. To what different kinds of risk are banks subjected today?a. Earnings Risk -- the probability that a bank's earnings (net income) will fall, subjecting its stockholders to actual losses or to lower rates of return.b. Credit Risk -- the probability that loans and securities the bank holds will not pay out as promised.c. Solvency Risk -- the possibility or probability the bank will fail.d. Liquidity Risk -- the probability the bank will not have sufficient cash on hand in the volume needed precisely when cash demands arise.e. Market Risk -- the probability that the value of assets held by the bank will decline due to falling market prices.f. Interest-Rate Risk - the possibility or probability interest rates will change, subjecting the bankto losses.5-17. What items on a bank's balance sheet and income statement can be used to measure it's risk exposure?There are several alternative measures of risk in banking. Solvency risk is often measured by bank capital ratios, such as the ratio of total capital to total assets or total capital to risk assets. Creditrisk can be tracked by such ratios as net loan losses to total loans or relative to total capital. Liquidity risk can be followed by using such ratios as cash assets to total assets or by total loans to total assets. Interest-rate risk may be indicated by such ratios as interest-sensitive liabilities to interest-sensitive assets or the ratio of money-market borrowings to money-market assets.5-18. A bank reports that the total amount of its net loans and leases outstanding is $936 million,its assets total $1,342 million, its equity capital amounts to $110 million, and it holds $1,150 million in deposits, all expressed in book value. The estimated market values of the bank's total assets and equity capital are $1,443 million and $130 million, respectively. The bank's stock is currently valued at $60 per share with annual per-share earnings of $2.50. Uninsured deposits amount to $243 million and money market borrowings total $ 1 32 million, while nonperforming loans currently amount to $43 million, and the bank just charged off $21 million in loans. Calculate as many of the bank's risk measures as you can from the foregoing data.Net Loans and Leases = $936 mill. Uninsured Deposits $243 mill.mill.0.7069 or 70.69 percent 0.2113 or 21.13 percentEquity Capital = $130 mill. Stock Price $60Total Assets $1,443 mill. Earnings Per Share $2.50 = 0.0901 or 9.01 percent = 24 XNonperforming Assets = $43 mill. =0.0459 or 4.59 percentNet Loans and Leases $1,443 mill.Charge-offs of loans = $21 Purchased Funds = $243 mill. + $132 mill. Total Loans and Leases $936 Total Liabilities $1,324 mill. - $110 mill.=.0224 or 2.24 percent .3089 or 30.89 percentBook Value of Assets = $1324 =0.9175 or 91.75 percentMarket Value of Assets $1443Problems5-1. First National Bank of Inesco is expected to pay a dividend of $12 per share at the end of the year and its stock dividends are expected to grow 8 percent a year indefinitely into the future. If the appropriate discount rate applied to the bank's expected dividend stream is 15 percent,Inesco's current stock price should be:P o = D (k g)1- = $12(.15.08)- = $171.43 per share.5-2.Price State Bank's expected stream of dividends over the next three years is as follows: Expected Dividends Per SharePeriod 1 $3.00Period 2 $4.50Period 3 $6.00Applying a discount rate of 12 percent to this dividend stream yields an estimated stockprice ofP o = $3(1.12)+ + $4.50(1.12)2+ + $6(1.12)3+ + $60(1.12)3+P 0 = $53.24 per share.5.3 Depositors and Merchants Bank has an equity-to-asset ratio of 7.5 percent which means its equity multiplier must be:1/(Equity Capital / Assets) = Assets EquityCapital = 1 / 0.075 = 13.33xIn contrast, Newton National Bank has an equity multiplier of:1/(Equity Capital / Assets) = 10.06= 16.67xWith an ROA of 0.85 percent Newton National would have an ROE of:ROE = 0.85 x 16.67x = 14.17 percent.In this case Newton National Bank is making greater use of financial leverage and is generating a higher return on equity capital.Depositors and Merchants has an ROE of:ROE = 0.85 x 13.33 x = 11.33 percent.5-4. The income and expense statement for Gilcrest Merchants National Bank, when arranged in proper order, would appear as follows:Gilcrest Merchants National Bank Income and Expense StatementInterest Fees on Loans $61Interest Dividends on Securities 12Total Interest Income 73Interest Paid on Deposits 49Interest on Nondeposit Borrowings 6Total Interest Expense 55Net Interest Income 18Provision for Loan Losses 2Noninterest Income and Fees 7Noninterest Expenses:Salaries and Employee Benefits 10Overhead Expenses 5Other Noninterest Expenses3Total Noninterest Expenses 18Net Income Before Taxes and SecurityGains or Losses 5Taxes 1Securities Gains (or Losses), Net ofTaxes1Net Income After Taxes $5Among the key ratios that can be calculated are the following:ROE = Net Income After Taxes = $5 =0.0180 or 1.80 percentEquity Capital $80ROA = Net Income After Taxes = $5 =0.005 or .5 percentTotal Assets $1000Net Interest Margin = Total Interest Income–Total Interest Expenses[($61 + $12) –($49 + $6)]=0.0180 or 1.8percent Total Assets $1000Net Noninterest = $7 - $18 =-0.011 or –1.1 percentMargin $1000Net operating margin = [Total Operating Revenues – Total Operating Expenses] /Total Assets = 1000$73$80$ = 0.0070 or 0.70 percent.Earnings = Total Interest Income - Total Interest Expenses = $61 + $12 - $49 + $6 Spread Total Earning Assets Total Interest Bearing $830 $710 Liabilities0.0880 – 0.0775 or 8.8 percent – 7.75 percent or 1.05 percentEarnings base = Total Assets – Nonearning Assets = $830 =0.83 or 83 percent in assets Total Assets $1000Profit Margin =Net income after taxes Total operating revenue = $5$80 = 0.0625 or 6.25 percent. Asset Utilization =Total operating revenue Total Assets = $80$1000 = $80$1000 = 0.08 or 8.0 percent Equity Multiplier =Total Assets Total Equity Capital = 12.5x Net Loans / Total Assets = 1000$670$ = 0.67 or 67 percentCash and Due from Bank = $120 = 0.12 or 12 percent Total Assets $1000Operating Efficiency Ratio = Total Operating Expenes Total Operating Revenues = $73$80 = 0.9125 or 91.25 percentEmployee Productivity = Net Operating Income = $80 - $73 = $175,000Ratio # of Full Time Employees $40 per employee5-5. The rates of return requested for Shadowwood National Bank are as follows:ROE = $105 ROA = $105$15,765 - $15,440 $15,7650.3231 or 32.31 percent 0.0067 or .67 percentNet Interest = $1875 - $1210 = $665 = 0.0527 or 5.27 percentMargin $12,612 $12,612(If total assets are used as the denominator, NIM = 4.22%.)Net Noninterest Margin =$501$685$12,612= 0.0146 or –1.46 percent.(If total assets are used as the denominator, the noninterest margin is –1.17%).Net Operating = ($1,875+- $501) – ($1,210 + $685 + $381) = $100 =0.0063 or.63 percent Margin $15,765 $15,765Net Return Before = ($1,875 + $501) – ($1,210 + $685 + $381 + $16) = $84 = 0.0053 or .53 Special Transaction Costs $15,765 $15,765 .percentEarnings per Share = 000,145000,000,105$ = $724.14 per share.Alternative Scenario 1:Suppose interest income, interest expenses, noninterest income, and noninterest expenses each increase by 5 percent, with all other items remaining unchanged.If we assume that the 5% increase flows through to net income, resulting in a 5% increase in net income, then the ROE, ROA, and EPS will increase by (at least) 5% also. Actually, the scenario which does not have provision for loan losses, securities gains, and taxes increasing would result in a greater than 5% increase in net income. This would, of course, result in the ROE, ROA, and EPS increases being greater than 5%.Alternative Scenario 2:Suppose Shadowood's interest income, interest expenses, noninterest income, and noninterest expenses decline by 5 percent, all other factors held equal. As with scenario 1, if we assume the decrease flows through to net income, then net income will decrease by 5%. This decrease will result in ROE, ROA, and EPS actually being greater than 5% as a result of the other items, such as provision for loan losses, taxes, and securities gains, not changing. Base Problem Alternative Scenario 1 AlternativeScenario 2Interest Income $1875 $1968.75 $1781.25 Interest Expense 1210 1270.50 1149.50 Net Interest Income $ 665 $ 698.25 $ 631.75Provision for Loan Losses $ 381 $ 381 $ 381Noninterest Income $ 501 $ 526.05 $ 475.95 Noninterest Expense 685 719.25 650.75 Net Noninterest Income ($184) ($193.20) ($174.8)Net Income Before Taxes $ 100 $ 124.05 $ 75.95 Income Taxes $ 16 $ 16 $ 16 Securities Gaines (orLosses)21 21 21 Net Income After Taxes $ 105 $ 129.05 $ 80.95Common SharesOutstanding145,000 145,000 145,000Base Problem AlternativeScenario 1AlternativeScenario 2a. ROE 32.31% 39.71% 24.91%b. ROA 0.67 0.82% 0.51%c. NIM (1) 5.27% 5.54% 5.01%NIM (2) 4.22% 4.43% 4.01%d. EPS $724.14 $890.00 $558.28e. NNIM (1) -1.46% -1.53% -1.39%NNIM (2) -1.17% -1.23% -1.11%f. NOM 0.63% 0.79% 0.48%g. Net Returns BeforeSpecial Transactions0.53% 0.69% 0.38%Notes: All figures except Common Shares in millions.Equity Capital = Total Assets - Total Liabilities = $ 15,765 - $15,440= $ 325 (millions) Total Assets =$15,765 millionsEarning Assets = $12,612 millionsNIM(1) uses Earning Assets in the denominator; NIM(2) uses Total AssetsNNIM(1) uses Earning Assets in the denominator; NNIM(2) uses Total Assets5-6. Selected balance sheet and income statement data for Farmers and Merchants National Bank are given as follows:Given: ROA = 0.0076 (i.e., 0.76%)Total Assets = $1.69 billion ($1,690 million)Equity Capital = $139 millionSolution:ROE = ROA * Total AssetsEquity Capital = 0.0076 * $1,690$139= 0.0924 or 9.24%Alternative Scenario 1:R0A increases by 50%, with no change in assets or equity capital.Therefore, the new ROA = 0.0076 * 1.5 = 0.0114 or 1.14%.New ROE = 1.14% * 12.16 = 13.86%This represents a 50% increase in ROE. With no changes in assets or equity, the investors' funds are more effectively utilized, generating additional income and making the bank more profitable. Alternative Scenario 2:ROA decreases by 50%, with no change in equity or assets.Therefore, the new ROA = 0.0076 * 0.5 = 0.0038 or 0.38%.New ROE = 0.38% * 12.16 = 4.62%This represents a 50% decrease in ROE. The bank's management has been less efficient, in this case, in managing their lending and/or investing functions or their operating costs.Alternative Scenario 3:ROA = 0.0076 or 0.76% (as in the original problem)Total assets double in size to $3.38 billion and equity capital doubles in size to $278 million. Therefore, the equity multiplier (i.e. total assets/equity capital) remains the same (E.M. =$3,380/$278 = 12.16). As a result, there is no change in ROE from the original situation (i.e., 0.76% * 12.16 = 9.24%).Alternative Scenario 4:This, of course, is just the reverse of scenario 3. Since the changes in both assets and equity capital are the same, the ratio of the two (i.e., the equity multiplier) remains constant. As a result, there is again no change in ROE.E.M. = Total Assets/Equity Capital = $845/$69.5 = 12.16.Therefore, ROE = 0.76% * 12.16 = 9.24%.5-7. Granite Dells State Bank reports the following information:Given:Total Operating Revenues = $135 millionTotal Operating Expenses = $121 millionTax Liability = $2 millionTotal Assets = $1.17 billionTotal Liabilities = $989 millionSolution:Net Income after Taxes = $135 million -$121 million -$2 million = $12 millionEquity Capital = $1.17 billion - $989 million = $181 million= $12 million / $181 million = 0.0663 or 6.63%.ROE = Net Income after TaxesEquity CapitalAlternative Scenario 1:Given: Total operating revenues, total operating expenses, and taxes each grow by 10%, but assets and liabilities remain fixed.Solution:Total revenues = $135 million * 1.10 = $148.5 millionTotal expenses = $121 million * 1.10 = $133.1 millionTax liability = $2 million * 1.10 = $2.2 millionNet Income after Taxes = $148.5 - $133.1 - $2.2 = $13.2 millionROE = $13.2 million/$181 million = 0.0729 or 7.29%= 10% (ROE increases by 10%)Change in ROE = 7.29% 6.63%6.63%Alternative Scenario 2:Given: Total assets increase by 10% (Total assets = $ 1.17 * 1.10 = $1.287 billion)Total liabilities increase by 10% (Total liabilities = $989 million * 1.10 =1.0879Revenues and expenses (including taxes) remain unchanged.Solution: Equity Capital = $1.287 billion - $1.0879 billion = $199.1 million= 0.063 or 6.03%ROE = $12 million$199.1 millionTherefore change in ROE = 6.03% - 6.63% = -0.6% = -9%6.63% 6.63% (ROE decreases by 9%)Alternative Scenario 3:Given: Total revenues decline by 10% (Total revenues = $135 million * 0.90 = $121.5 million) Total expenses decline by 10% (Total expenses = $121 million * 0.9 = $108.9 million)Tax liability declines by 10% (Tax liability = $2 * 0.9 = $1.8 million)Assets and liabilities remain unchanged (Therefore, equity remains unchanged)Solution: Net Income after Tax = $121.5 million - 108.9 million - $1.8 million = $10.8 ROE = $10.8 million = 0.0597 = 5.97%$181 millionTherefore, change in ROE = 5.97% - 6.63% = -0.66% = -10% (ROE decreases by 10%)6.63% 6.63%Alternative Scenario 4:Given: Assets and liabilities decrease by 10%; therefore,Equity capital decreases by 10%,Operating revenues, operating expenses, and taxes remain unchanged.Solution: Total assets = $1.17 billion * 0.9 = $1.053 billionTotal liabilities = $989 million * 0.9 =$890.1 millionEquity capital = $1.053 billion - $890.1 million = $162.9 million= 0.0737 or 7.37%ROE = $12 million$162.9 million5-8. Suppose a bank is projected to achieve a 1.25 percent ROA during the coming year. What must its ratio of total assets to total equity capital be if it is to achieve a 12-percent ROE goal? Given: ROA = 1.25% and target ROE = 12%Solution: ROE = ROA * (Total Assets/Equity Capital)Total Assets = ROE = 12% = 9.6 xEquity Capital ROA 1.25%If ROA unexpectedly falls to 0.75% and target ROE remains 12%:Solution:12% = .75% * Total AssetsEquity CapitalTotal Assets = 12% =16 xEquity Capital .75%Alternative Scenario 1:Given: ROA = 1.5% and target ROE = 12%Solution: Total Assets = 12% = 8xEquity Capital 1.5%Alternative Scenario 2:Given: Bank's ROA unexpectedly declines to 0.75%Solution: Total Assets = 12% = 16 x (The same as part 2 of original problem) Total Equity .75%5-9. The following information is given for Blythe County National Bank:Net Income after Taxes = $16 millionTotal Operating Revenues = $215 millionTotal Assets = $1,250 millionTotal Equity Capital Accounts = $111 millionSolve for the bank's net profit margin, asset utilization ration, equity multiplier, and ROE. Solutions:a. Net Profit Margin = Income After Taxes = $16 mill. = 0.0744 or 7.44%Total Operating Revenue $215 mill.b. Asset Utilization = Total Operating Revenues = $215 mill. = 0.172 or 17.2%Total Assets $1250 mill.c. Equity Multiplier = Total Assets = $1250 mill. = 11.26 timesTotal Equity Capital $111 mill.d. ROE = Net Income After Taxes = $16 mill. = 0.1441 or 14.41%Total Equity Capital $111 mill.Alternative Scenario:Given: Total Liabilities = $1,475 million。

《商业银行管理学》课后习题及题解第一章商业银行管理学导论习题一、判断题1. 《金融服务现代化法案》的核心内容之一就是废除《格拉斯－斯蒂格尔法》。

2. 政府放松金融管制与加强金融监管是相互矛盾的。

3. 商业银行管理的最终目标是追求利润最大化。

4. 在金融市场上，商业银行等金融中介起着类似于中介经纪人的角色。

5. 商业银行具有明显的企业性质，所以常用于企业管理的最优化原理如边际分享原理、投入要素最优组合原理、规模经济原理也适用于商业银行。

6. 金融市场的交易成本和信息不对称决定了商业银行在金融市场中的主体地位。

7. 企业价值最大化是商业银行管理的基本目标。

8. 商业银行管理学研究的主要对象是围绕稀缺资源信用资金的优化配置所展开的各种业务及相关的组织管理问题。

9. 商业银行资金的安全性指的是银行投入的信用资金在不受损失的情况下能如期收回。

二、简答题1. 试述商业银行的性质与功能。

2. 如何理解商业银行管理的目标？3. 现代商业银行经营的特点有哪些？4. 商业银行管理学的研究对象和内容是什么？5. 如何看待“三性”平衡之间的关系？三、论述题1. 论述商业银行的三性目标是什么，如何处理三者之间的关系。

2. 试结合我国实际论述商业银行在金融体系中的作用。

第一章习题参考答案一、判断题1.√2.×3.×4.√5.×6.√7.×8.√9.√二、略；三、略。

第二章商业银行资本金管理习题一、判断题1. 新巴塞尔资本协议规定，商业银行的核心资本充足率仍为4％。

2. 巴塞尔协议规定，银行附属资本的合计金额不得超过其核心资本的50%。

3. 新巴塞尔资本协议对银行信用风险提供了两种方法：标准法和内部模型法。

4. 资本充足率反映了商业银行抵御风险的能力。

5. 我国国有商业银行目前只能通过财政增资的方式增加资本金。

6. 商业银行计算信用风险加权资产的标准法中的风险权重由监管机关规定。

二、单选题1. 我国《商业银行资本充足率管理办法》规定，计入附属资本的长期次级债务不得超过核心资本的。

CHAPTER 10OFF-BALANCE-SHEET FINANCING IN BANKING AND CREDIT DERIVATIVESGoal of This Chapter: To learn about some of the newer financial instruments that banks have used in recent years to help reduce the risk exposure of their bank, and in some cases, to aid in generating new sources of fee income and in raising new funds to make loans and investments.Key Terms Presented in This ChapterSecuritization Contingent obligationCredit Enhancement IssuerLoan Sales Account partyServicing Rights BeneficiaryParticipation Loans Credit derivativesAssignments Credit swapLoan strip Credit optionFinancial guarantees Credit default swapStandby letter of credit (SLC)Chapter OutlineI. Introduction: Sources of Funds Shortages and Credit Risk for BanksII. Securitizing Bank Loans and Other AssetsA. Nature of SecuritizationB. Advantages of SecuritizationC. The Rate Structure of SecuritizationD. Beginnings of Securitization – The Home Mortgage Market1. Collateralized Mortgage Obligations – CMOs2. Securitization of Home Equity LoansE. Examples of Other Assets That Have Been SecuritizedF. Subordinated SecuritizationsG. Trends in Securitizations TodayH. Impact of Securitization on BanksIll. Sales of Loans to Raise FundsA. Nature of Loan SalesB. Loan Participations and Loan StripsC. Reasons Behind Loan SalesD. The Risks in Loan SalesIV. Standby Credit LettersA. The Nature of Standby Credits (Contingent Obligations)B. Types of Standby Credit LettersC. Advantages of StandbysD. The Structure of Standby Letters of CreditE. The Value and Pricing of Standby LettersF. Sources of Risk with Standby CreditsG. Regulatory Concerns about Standby Credit ArrangementsH. Research Studies of Standbys and Other Contingent ObligationsV. Credit DerivativesA. An Alternative to SecuritizationB. Credit SwapsC. Credit OptionsD. Credit Default SwapsE. Credit Linked NotesF. Risks Associated With Credit DerivativesVI. Summary of the ChapterConcept Checks10-1. What does securitization of assets mean?Securitization involves the pooling of groups of earning assets, removing those pooled assets from the bank’s balance sheet, and issuing securities against the pool. As the pooled assets generate interest income and repayments of principal the cash generated by the pooled earning assets flows through to investors who purchased those securities.10-2. What kinds of assets are most amenable to the securitization process?The best types of assets to pool are high quality, fairly uniform loans, such as home mortgages or credit card receivables.10-3. What advantages does securitization offer for banks?Securitization gives banks the opportunity to use their assets as sources of funds and, in particular, to remove lower-yielding assets from the balance sheet to be replaced with higher-yielding assets. 10-4. What risks of securitization should bank managers be aware of?Banks often have to use the highest-quality assets in the securitization process which means the remainder of the portfolio may become more risky, on average, increasing the bank’s capital requirements.10-5. Suppose a bank securitizes a package of its loans that bear an expected gross annual interest yield of 13 percent. The securities issued against the loan package promise interested investors an annualized yield of 8.25 percent. The expected default rate on the packaged loans is 3.5 percent. The bank agrees to pay an annual fee of 0.35percent to a security dealer in order to cover the cost of underwriting and advisory services and a fee of 0.25 percent to Arunson Mortgage Servicing Corporation to process the payments generated by the packaged loans. If the above items represent all the costs associated with this securitization transaction can you calculate the percentage amount of residual income the bank expects to earn from this particular transaction?The bank’s estimated residual income should be about:Gross Loan Security Expected Default On Underwriting Yield - Interest Rate - Packaged Loans - And Advisory Fee13% 8.25% 3.5% .35%Servicing Expected- Fee = Residual Income.25% .65%10-6. What advantages do sales of loans have for banks trying to raise funds?Loan sales permit a bank to get rid of less desirable or lower-yielding loans and allow them to raise additional funds.10-7. Are there any disadvantages to using loan sales as a significant source of bank funding? Loans may have to be sold at deep discounts and result in a higher average level of risk for the loans the bank still retains on its balance sheet.10-8. What is loan servicing?Loan servicing involves monitoring borrower compliance with a loan’s terms, collecting and recording loan payments, and reporting to the current holder of the loan.10-9. How can servicing be used to increase bank income?Many banks have retained servicing rights on the loans they have sold, earning fees from the current owners of those loans.10-10. What are standby credit letters? Why have they grown so rapidly in recent years? Standby credit letters are promises of a bank or other lender to pay off an obligation of one of its customers in case that customer cannot pay. There are several reasons that standby credit agreements have grown. There has been a tremendous growth in direct financing by companies (issuance of commercial paper) and with growing concerns about default risk on these direct obligations banks have been asked to provide a credit guarantee. Another reason for their growth is the ability of the bank to use their skills to add fee income to the bank Another reason is that these have a relatively low cost for the bank. Finally banks and customers perceive that there has been an increase in economic fluctuations and there has been increased demand for risk reducing devices.10-11. Who are the principal parties to a standby credit agreement?The principal parties to a standby credit agreement are the issuing bank or other institution, the account party who requested the letter, and the beneficiary who will receive payment from the issuing institution if the account party cannot meet its obligation.10-12. What risks accompany a standby credit letter for (a) the issuing bank and (b) the beneficiary?Standbys present the issuing bank with the danger that the customer whose credit the bank has backstopped with the letter will need a loan. That is, the bank’s contingent obligation will become an actual liability, due and payable. The beneficiary that has to collect on the letter must be sure it meets all the conditions required for presentation of the letter or it will not be able to recover its funds.10-13 How can a bank mitigate the risks inherent in issuing standby credit letters?Bankers can use various devices to reduce risk exposure from the standby credit letters they have issued, such as:1. Frequently renegotiating the terms of any loans extended to customers who havestandby credit guarantees so that loan terms are continually adjusted to thecustomers’ changing circumstances and there is less need for the beneficiaries ofthose guarantees to press for collection.2. Diversifying standby letters issued by region and by industry to avoidconcentration of risk exposure.3. Selling participations in standbys in order to share risk with a variety of lendinginstitutions.10-14. Why were credit derivatives developed? What advantages do they have over other loan sales and securitizations, if any?Credit derivatives were developed because not all loans can be pooled. In order to be pooled, the group of loans has to have common features such as maturities and cash flow patterns and many business loans do not have those common features. Credit derivatives can offer the beneficiary protection in the case of loan default and may help the bank reduce its credit risk and possibly its interest rate risk as well.10-15. What is a credit swap? For what kinds of situations was it developed?A credit swap is where two lenders agree to swap portions of their customer’s loan repayments. It was developed so that banks do not have to rely on one narrow market area. They can spread out the risk in the portfolio over a larger market area.10-16. What is a total return swap? What advantages does it offer the swap’s beneficiary’s institution?A total return swap is a type of credit swap where the dealer guarantees the swap parties a specific rate of return on their credit assets. A total return swap can allow a bank to earn a more stable rate of return than it could earn on its loans. This type of arrangement can also shift the credit risk and the interest rate risk from one bank to another.10-17. How do credit options work? What circumstances result in the option contract paying off?A credit option helps guard against losses in the value of a credit asset or helps offset higher borrowing costs. A bank which purchases a credit option contract will exercise their option if the asset declines significantly in value or loses its value completely. If the assets are paid off as expected then the option will not be exercised and the bank will lose the premium they paid for the option. A bank can also purchase a credit option which will be exercised if their borrowing costs rise above a specified spread between their cost and a riskless asset.10-18. When is a credit default swap useful? Why?A credit default swap is a credit option written on a portfolio of assets or a credit swap on a particular loan where the other bank in the swap agrees to pay the first bank a certain fee if the loan defaults. This type of arrangement is designed for banks that can handle relatively small losses but want to protect themselves from serious losses.10-19. Of what use are credit-linked notes?A credit-linked note allows the issuer of a note to lower the coupon payments if some significant fact changes. For example, if more loans on which the notes are based default than expected, the coupon payments on the notes can be lowered. The lender has taken on credit-related insurance from the investors who have purchased the note.10-20. What risks do credit derivatives pose for banks using them? What is the attitude of the regulatory community, thus far, toward banks using these credit-related instruments? In your opinion what should regulators do about the recent rapid growth of this market, if anything? There are several risks associated with these instruments. One risk is that the other party in the swap or option may fail to meet their obligation. Courts may rule that these instruments are illegal or improperly drawn. These types of instruments are relatively new and the markets for these instruments are relatively thin. If a bank needs to resell one of these contracts they may have difficulty finding a buyer or they may not be able to sell it at a reasonable price. So far regulators have left this market virtually unregulated, although this could change any time. Regulators need to understand clearly the benefits and risks of these types of credit instruments and act to ensure the safety of the banks.Problems10-1. Deltone National Bank has placed a group of 10,000 consumer loans bearing an average expected gross annual yield of 14.5 percent in the securitization process. The expected costs are:Interest on Securities Issued 10.08%Expected Default Rate 2.67Investment Banking Fees 0.65Liquidity Facility 0.45Credit Guarantee 0.55Sum of Expected Costs 14.40%The estimated residual income for Deltone National Bank is:Gross Annual Sum of Estimated ResidualYield on Loans - Expected Costs of = Income ofof 14.50% 14.40% .10%10-2. Ryfield Corporation is requesting a loan for repair of some assembly-line equipment in the amount of $5 million. The 9-month loan is priced by First National Bank at a 9 ¼ percent rate of interest. However, the bank tells Ryfield that if it obtains a suitable credit guarantee the loan will be priced at 9 percent. Quinmark Bank agrees to sell Ryfield a standby credit guarantee for $10,000. Is Ryfield likely to buy the standby credit agreement. Please explain.The interest savings from having the credit guarantee would be:[$5 mill. * 0.0925 * ¾] - [$5 mill. x 0.0900 * ¾] = $9,375Clearly, the $10,000 guarantee is overpriced and will not be accepted.10-3. First Security National Bank has a $30 million, 5-year term loan request from United Safeco Industries, about half of which will be used to buy new stamping machines used in the manufacture of metal toys and containers. The remainder of the funds are to be used to help fund a leveraged buyout of Calem Corporation which imports video equipment. However, the bank wishes to reduce its aggregate risk exposure from funding leveraged buy-outs. A forecast of higher interest rates argues against locking the bank in to longer-term, less flexible loan agreements currently.Does the bank have any service option in the form of off-balance-sheet instruments that could help this customer meet its credit needs while avoiding committing $30 million in reserves for afive-year loan? What would you recommend that management do to keep United Safeco happy with its current banking relationship? Could the bank earn any fee income if it pursued your idea? In view of these reasonable objectives on the part of First Security National Bank’s management, the bank should consider recommending that the leveraged buy-out portion of the request be handled by an offering of bonds or, perhaps, 5-year notes, with the bank issuing a standby letter of credit for a portion (though probably not all) of the bond or note issue. Armed with First Security’s standby credit agreement, United Safeco should be able to borrow through a security issue at a substantially lower interest rate. First Security could sell participations in the standby credit to share its risk exposure.For the portion of the loan that calls for the purchase of new assembly-line equipment, management might seriously consider proposing a shorter-term loan for about one-third toone-half the total amount requested by Safeco. This loan would be secured by a pledge of the new equipment plus sufficient covenants to insure the maintenance of adequate liquidity and require bank approval before significant amounts of other forms of debt are undertaken.First Security could generate fee income from this relationship by assessing a fee for issuing the standby letter of credit. The fee for a standby letter of credit typically ranges from ½ percent to 1 percent of the amount of the standby guarantee, depending upon the bank’s assessment of the degree of risk exposure in the guarantee.Currently, the interest rate on three-month Eurodollar deposits in London is 8.4 percent. Federal funds and six-month CDs are trading in the United States at 8.55 percent and 8.21 percent, respectively. Term loans to comparable-quality corporate borrowers are trading at 1/8 to ¼ percentage point above the three-month Eurodollar rate and ¼ to ½ point over thesecondary-market CD rate.Is there a way that First Security National could earn at least as much fee income by providing United Safeco with support services as it could from making the loan United Safeco has asked for (after all loan costs are taken into account)? Please explain how the customer could also benefit even if the bank does not make the loan requested.If United Security National issues a standby letter of credit on behalf of United Safeco as described above, both parties should benefit. United Security, by issuing the standby credit agreement, does not have to tie up $30 million in reserves for an extended period of time as it would if it made the requested loan, particularly in a projected rising interest rate environment. The ½ percent to 1 percent fee would compare favorably in amount to the 1/8 to ¼ percent spread over the Eurodollar rate or the ¼ to ½ percent spread over the federal funds or CD rate that currently prevails in the market. Under the risk-based capital standards now in effect, the standby letter of credit will require the bank to hold capital in an amount equal to the capital requirement for the loan. Therefore, United Security National will have the same capital requirement for either transaction, the loan or the standby letter of credit.Also, as stated above, United Safeco should be able to issue bonds or notes at a more favorable rate with United Security National’s standby letter of credit behind them.Alternative Scenario:Given: The market rate on 90-day Eurodollar deposits drops to 7.60 percent and market interest rates on federal funds and six-month CDs fall to 7.45 percent and 7.55 percent, respectively. All other factors remain constant.Would this substantial rate decline change the relative attractiveness of First Security National’s options in this instance? Why or why not?In view of management’s position rega rding the funding of leveraged buy-outs, it is unlikely that the decline in interest rates, although significant, would change the relative attractiveness of First Security National’s options. Since the rate on a loan would be quoted relative to these bas e ratesand the spread will not change, the fee income generated by issuing the standby letter of credit would still be the more attractive option for the bank.10-4 Ellis Money Center Bank has served as the principal banker for Red Hills Corporation (RHC) for 15 years and their relationship has been both rewarding and friendly during all that time. However, Ellis bank’s senior management is somewhat troubled over recent developments at RHC.The management of the company, which manufactures selected electronic components for two computer firms, has recently launched a new on-line affiliate that sells office products via the internet. RHC has asked the bank for a renewal of its existing $15.75 million operating credit at prime (currently 8.75%) plus half. To be sure cash flows from the on-line sales operation have grown at an “adequate” pace (about 12 percent annually) but the new division has not yet become profitable despite a flurry of on-line activity and there are indications that operating costs are now rising more rapidly than before. Moreover, new on-line competition has appeared within the last 4 months.Ellis’ commercial loan committee believes that RHC’s market share in both its traditional product lines and in its new on-line venture have peaked and begun to decline lately. John Thomas, Ellis’ principal loan officer involved in this relationship, has tried to encourage senior management at RHC to seek more outside capital, especially as a support for its internet sales affiliate., but RHC’s management has, so far, declined to comment. Instead RHC contends that the renewal of its bank credit line should be “automatic” at this point in their long relationship.Mr. Thomas has asked your advice on this possibly troublesome problem, noting that with inflation apparently now under control the bank’s economics department is forecasting a lower prime rate in the near future. Moreover, the most recent bank examiners’ report on Ellis’ own financial condition has just lowered the bank’s overall qu ality rating from 1 to2 (on a 1 to 5 scale) due, in part, to a decline in the bank’s capital to risk-assets ratio and its higher loan-loss provision. Based on what you read in this chapter can you suggest a way for the bank to preserve its satisfactory relationship with RHC and still protect its financial position and loan portfolio quality?One possible answer to this problem is to make the loan to RHC and then consider a loan sale after the loan is made. This can help preserve the relationship between RHC and Ellis but at the same time allow a riskier asset to be removed from the balance sheet. This will also help Ellis improve its capital position and reduce both its credit risk and interest rate risk. This should help reduce pressure from regulators at the same time they maintain their relationship with a valuable customer. In addition, if Ellis keeps the servicing rights to the loan they can also generate fee income fro m this loan.Other possibilities for solving this problem include Ellis entering into a total return swap for this loan with another bank. Ellis would agree to give all interest and principal payments to the other bank as well as any increase in the loan’s market value. In return Ellis would get LIBOR plus some spread. In essence, the other bank would bear the credit risk on the loan. One last way to handle this problem is for Ellis to purchase a credit option on this loan after it is made. They couldenter into a contract that would pay off if the loan declines significantly in value or defaults. This would be the same as purchasing insurance against this particular loan. If the loan is good and pays off in full they would lose the premium they paid for the option. However, they would be protected against loss on this loan. These possibilities might not solve their regulatory problems as well but would help protect them from loss.10-5 What type of credit derivatives contract would you recommend for each of the following situations:a. A bank plans to issue a group of bonds backed by a pool of credit card loans but fears that the default rate on these credit card loans will rise above 6 percent of the portfolio – the default rate it has projected. The bank wants to lower the interest costs on the bonds in case the loan default rate is too high.The best solution to this problem is to use credit linked notes. The interest payments on these notes will change if significant factors change.b. A bank is about to make a $50 million project loan to develop a new gas field and is concerned about the risks involved if petroleum geologists’ estimates of the field’s potential yield turn out to be much too high and the borrowing developer cannot repay.One possibility for solving this problem is to use a credit option. If the developer cannot repay the loan then the option would pay off. They would lose their premium if the developer can repay the loan but they are protected against significant loss.c. A bank holding company plans to offer new capital notes in the open market next month, but knows that the company’s credit rating is being reevaluated by two credit-rating agencies. The holding company wants to avoid paying sharply higher credit costs if its rating is lowered by the investigating credit-rating agencies.A credit risk option would be a good solution to this problem because it protects the bank from higher borrowing costs in the future. If the borrowing costs rise above the spread spec ified in the option contract, the contract would pay off.d. A bank is concerned about possible excess volatility in its cash flow off a recently made group of commercial real estate loans supporting the building of several apartment complexes. Moreover, many of these loans were made at fixed interest rates, and the bank’s economics department has forecast a substantial rise in capital market interest rates. The bank’s management would prefer a more stable cash flow emerging from this group of loans if it could find a way to achieve it.One possibility to solve this problem would be to enter into a total return swap with another bank. The other bank would receive total payments of interest and principal on this loan as well as the price appreciation on this loan. The original bank would receive LIBOR plus some spread in return as well as compensation for any depreciation in value of the loan.e. First National Bank of Ashton serves a relatively limited geographic area centered around a moderate-sized metropolitan area. It would like to diversify its loan income based upon loans from other market areas it does not presently serve, but does not wish to make loans itself in these other market areas due to its lack of familiarity with loan markets outside the region it has served for many years. Is there a credit derivative contract that could help the bank achieve the loan portfolio diversification it seeks?This bank could enter into a credit swap with another bank. This swap agreement means that the two banks simply exchange a portion of their customers’ loan repayments. The purpose of this type of swap agreement is to help the two banks diversify their market area with having to make loans in an unfamiliar area.Web Site Problems1. As a stock analyst following the banking industry, you are especially concerned about the growth of off-balance sheet financing relative to the size of several leading banks in the industry. Your argument is that these off-balance sheet financial tools have, in fact, increased rather than reduced bank risk in many cases. What web sites do you think you could use to help you prove your point?One web site that would be somewhat helpful would be the FDIC web site. From this web site you could go to the UBPR and examine the growth of off-balance sheet items relative to the size of the bank over the last several years. You could determine whether these items have, in fact grown over the last several years. However, this does not tell you anything about the risk of these items or any changes in the risk of the bank as a result. There are a couple of ways to examine this issue. One way is to look at the reports by the Federal Reserve and the FDIC on these issues to see what their opinions of the changing risks of banks are. Another way is see what is being discussed is to do a search on risk of off-balance sheet items for banks and see if there have been any prominent discussions of these issues. As of this time, there does not appear to be much discussion ofoff-balance sheet items on the web so it may be that the risk of banks has not increased recently asa result of using off-balance sheet items.2. Is it true that risk is increasing in banking due, in part, to the rise of many off-balance sheet activities? Are there any web sites that appear to discuss this possible trend and could provide you with more information about what may be happening to bank risk?As mentioned in the previous question, two sites that would be good to check for trends in bank risk and the influence of off-balance sheet activities are the FDIC and the Federal Reserve. Both of these agencies are keeping a close eye on off-balance sheet activities of banks and would quickly notice any changes in bank risk. One article that was found at the current time is located at /publ/bcbsc134.pdf. It appears that one of the issues that is gaining attention now is the issue of adequate reporting of major off-balance sheet activities so that regulators and investors can be completely informed about the risks that banks face. As new types of o ff-balance sheet items are developed this will continue to be an important issue.。

商业银行管理彼得S.罗斯第八版课后答案第一章现代商业银行的概述1.解释现代商业银行的定义和特点。

商业银行是一种金融机构，主要从事存款、贷款、支付和其他与金融活动相关的业务。

其特点包括但不限于：收取利息和手续费、进行风险管理、提供信贷和储蓄服务、发行货币等。

2.列举现代商业银行的主要功能。

现代商业银行的主要功能包括但不限于：存款业务、贷款业务、国际业务、支付结算、外汇交易、信用和担保、投资银行业务、资金运作等。

3.商业银行与其他金融机构的区别是什么？和其他金融机构相比，商业银行的最大区别在于其可以发行货币，并具有相应的存储和支付功能。

此外，商业银行还可以从中央银行和其他金融机构获得流动性支持。

此外，商业银行还拥有广泛的客户群体和网络，可以提供多样化的金融产品和服务。

第二章商业银行的治理结构1.解释商业银行的治理结构。

商业银行的治理结构是指银行内各个决策层级和机构之间相互关系的安排和管理方式。

这包括董事会、监事会、高级管理层等。

2.详细描述商业银行治理结构中各种角色的职责和权力。

•董事会：负责制定银行的战略方向和政策，监督高级管理层的工作表现。

•监事会：负责审计和监督董事会和高级管理层的工作，确保其合法、合规。

•高级管理层：负责银行的日常经营管理，执行董事会决策，负责风险管理和业绩目标的实现。

•内部控制机构：负责制定和实施内部控制制度，保障银行运营的合规性和风险控制。

3.商业银行的治理结构有哪些挑战和改进措施？商业银行的治理结构面临的主要挑战包括：信息不对称、利益冲突、监管合规等。

为了改善这些问题，银行可以采取以下措施：加强内部控制机制、设立独立董事、加强风险管理和合规审查等。

第三章商业银行的资本管理1.商业银行为什么需要资本？商业银行需要资本来保证其业务的顺利运作。

资本可以用于覆盖银行风险、偿还债务、承担损失等。

同时，一定水平的资本也是银行移植的法定要求。

2.商业银行的资本可以来源于哪些渠道?商业银行资本的主要来源有：股东投资、利润留存、债务融资、政府注资等。

Chapter 7ASSET LIABILITY MANAGEMENT: THE CONCEPT OF DURATION AND MANAGING A BANK’S DURATION GAPGoal of this Chapter: To examine the concept of duration and to see how bankers use duration analysis to offset the potentially damaging effects of rising or falling market interest rates.Key Terms Presented in this ChapterDuration Portfolio ImmunizationDuration Gap ConvexityChapter OutlineI. Introduction: The Drawbacks of IS Gap Management and the Need for Duration II. The Concept of DurationA.Definition of DurationB.Calculation of Duration Worth and DurationD.Price Risk and DurationE.Convexity and DurationIII. Using Duration to Hedge Against Interest-Rate RiskA.Duration Gap1.Dollar Weighted Duration of Assets2.Dollar Weighted Duration of Liabilities3.Positive Duration Gap4.Negative Duration GapB.Change in the Bank’s Net Wo rthIV. Limitations of Duration Gap ManagementV. Summary of the ChapterConcept Checks7-1. What is duration?Duration is a value-weighted measure of the maturity of a security or otherincome-generating asset that takes into consideration the amount and timing of all cash flows expected from the asset7-2. How is a bank's duration gap determined?A bank's duration gap is determined by taking the difference between the duration of a bank's assets and t he duration of its liabilities. The duration of the bank’s assets can bedetermined by taking a weighted average of the duration of all of the assets in the bank’s portfolio. The weight is the dollar amount of a particular type of asset out of the total dollar amount of the assets of the bank. The duration of the liabilities can be determined in a similar manner.7-3 What are the advantages of using duration as an asset-liability management tool as opposed to interest-sensitive gap analysis?Interest-s ensitive gap only looks at the impact of changes in interest rates on the bank’s net income. It does not take into account the effect of interest rate changes on the market value of the bank’s equity capital position. In addition, duration provides a sin gle number which tells the bank their overall exposure to interest rate risk.7-4 How can you tell you are fully hedged using duration gap analysis?You are fully hedged when the dollar weighted duration of the assets portfolio of the bank equals the dollar weighted duration of the liability portfolio. This means that the bank has a zero duration gap position when it is fully hedged. Of course, because the bank usually has more assets than liabilities the duration of the liabilities needs to be adjusted by the ratio of total liabilities to total assets to be entirely correct.7-5 What are the principal limitations of duration gap analysis? Can you think of some ways of reducing the impact of these limitations?There are several limitations with duration gap analysis. It is often difficult to find assets and liabilities of the same duration to fit into the bank’s portfolio. In addition, someaccounts such as deposits and others don’t have well defined patterns of cash flows which makes it difficult to calculate a duration for these accounts. Duration is also affected by prepayments by customers as well as default. Finally, duration analysis works best when interest rate changes are small and short and long term interest rates change by the same amount. If this is not true, duration analysis is not as accurate.7-6. Suppose a bank has an average asset duration of 2.5 years and an average liability duration of 3.0 years. If the bank holds total assets of $560 million and total liabilities of $467 million, does it have a significant duration gap? If interest rates rise, what will happen to the value of the bank's net worth?Duration Gap = D A – D L * Assets s Liabilitie = 2.5 yrs. – 3.0 yrs. ⎪⎭⎫ ⎝⎛million $560million $467 = 2.5 years – 2.5018 years= -0.018 yearsThis bank has a very slight negative duration gap; so small in fact that we could consider it insignificant. If interest rates rise, the bank's liabilities will fall slightly more in value than its assets, resulting in a small increase in net worth.7-7. Stilwater Bank and Trust Company has an average asset duration of 3.25 years and an average liability duration of 1.75 years. Its liabilities amount to $485 million, while its assets total $512 million. Suppose that interest rates were 7 percent and then rise to 8 percent. What will happen to the value of the Stilwater Bank's net worth as a result of a decline in interest rates?First, we need an estimate of StiIwater's duration gap. This is:Duration Gap = 3.25 yrs. – 1.75 yrs * mill.$512mill. $485= + 1.5923 yearsThen, the change in net worth if interest rates rise from 7 percent to 8 percent will be: Change in NW = ⎥⎦⎤⎢⎣⎡++⎥⎦⎤⎢⎣⎡++mill. x$485.07)(1.01 x yrs. 1.75- - mill $512x .07)(1.01 x yrs. 3.25-= $7.62 million.Problems7-1. Casio Merchants and Trust Bank, N.A., has a portfolio of loans and securities expected to generate cash inflows for the bank as follows:Expected Cash Receipts Period in Which Receipts Are Expected$1,385,421 Current year746,872 Two years from today341,555 Three years from today62,482 Four years from today9,871 Five years from todayDeposits and money market borrowings are expected to require the following cash outflows:Expected Cash Payments Period in Which Payments Will be Made$1,427,886 Current year831,454 Two years from today123,897 Three years from today1,005 Four years from today----- Five years from todayIf the discount rate applicable to the above cash flows is 8 percent, what is the duration of the bank's portfolio of earning assets and of its deposits and money market borrowings? What will happen to the bank's total returns, assuming all other factors are held constant, ifinterest rates rise? If interest rates fall? Given the size of the duration gap you have calculated, what type of hedging should the bank engage in? Please be specific about the hedging transactions that are needed and their expected effects.Solution:Casio has an asset duration of:$1,385,421 *1 + $746,872 * 2 + $341,555 * 3 + $62,482 * 4 + $9,871 * 5(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.O8)4 (1 + 0.O8)5D A = $1,385,421 + $746,872 + $341,555 + $62,482 + $9,871(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.08)4 (1 + 0.08)5=$3,594,1481 / $2,246,912 = 1.5996 yearsCasio has a liability duration of:$1,427,886 * 1 + $831,454 * 2 + $123,897 * 3 + $1,005 * 4(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.08)4D L=$1,427,886 + $831,454 + $123,897 + $1,005(1 + 0.08)1 (1 + 0.08)2 (1 + 0.08)3 (1 + 0.08)4= $3,045,808 / $2,134,047 = 1.4272 yearsCasio's Duration Gap = Asset Duration - Liability Duration = 1.5996 - 1.4272 = 0.1724 years.Because Casio's Asset Duration is greater than its Liability Duration, the bank has a positive duration gap, which means that the bank's total returns will decrease if interest rates rise because the value of the liabilities will decline by less than the value of the assets. On the other hand, if interest rates were to fall, this positive duration gap will result in the bank's total returns increasing. In this case, the value of the assets will rise by a greater amount than the value of the liabilities.Given the magnitude of the duration gap, the management of Casio Merchants and Trust Bank needs to do a combination of things to close its duration gap between assets and liabilities. It probably needs to try to shorten asset duration, lengthen liability duration, and use financial futures or options to deal with whatever asset-liability gap exists at the moment. The bank may want to consider securitization or selling some of its assets, reinvesting the cash flows in maturities that will more closely match its liabilities' maturities. The bank may also consider negotiating some interest-rate swaps to change the cash flow patterns of its liabilities to more closely match its asset maturities. Alternative Scenario 1:Given: The discount rate applicable to Casio's cash inflows and outflows falls to 6 percent. How does the duration of its earning assets and liabilities change? How does this change affect the bank's sensitivity to interest rate movements?Solution:Casio now has an asset duration of:$1,385,421 * 1 + $746,872 * 2 + $341,555 * 3 + $62,482 * 4 + $9,871 * 5(1 + 0.06)1 (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4 (1 + 0.06)5D A =$1,385,421 + $746,872 + $341, 555 + $62,482 + $9,871(1 + 0.06)1 (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4 (1 + 0.06)5= $3,731,603 / $2,315,358 = 1.6117 yearsCasio now has a liability duration of:$1,427,886 * 1 + $831,454 * 2 + $123,897 *3 + $1,005 * 4(1 + 0,06)1 1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4D L=$1,427,886 + $831,454 + $123,897 + $1,005(1 + 0.06)1 (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4= $3,142,308 / $2,191,876 = 1.4336 yearsBoth the Asset Duration and the Liability Duration increase with the decline in the discount rate, with the Asset Duration increasing by more than the Liability Duration. The Duration Gap increases from 0.1724 years to 0.1781 years, making Casio more sensitive to interest rate changes.Alternative Scenario 2:Given: The appropriate discount rate climbs to 10 percent.What happens to the durations of Casio's earning assets and liabilities? How does the interest rate sensitivity of Casio's total return change as a result of this upward movement in the discount rate?Solution:Casio now has an asset duration of:$1,385,421 * 1 + $746,872 * 2 + $341,555 X 3 + $62,482 * 4 + $9,871 * 5 (1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4 (1 + 0.10)5 D A =$1,385,421 + $746,872 + $341,555 + $62,482 + $9,871(1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4 (1 + 0.10)5= $3,465,169 / $2,182,144 = 1.5880 yearsCasio now has a liability duration of:$1,427,886 * 1 + $831,454 * 2 + $123,897 * 3 + $1,005 * 4(1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4D L = $1,427,886 + $831,454 + $123,897 + $1,005(1 + 0.10)1 (1 + 0.10)2 (1 + 0.10)3 (1 + 0.10)4= $2,954,385 / $2,079,002 = 1.4211 yearsThe new Duration Gap = 1.5880 – 1.4211 = 0.1669 years.With the increase in the discount rate, both the Asset Duration and the Liability Duration decrease, with the Asset Duration declining by a greater rate than the Liability Duration.The interest sensitivity of the two portfolios, and the bank as a whole, declines, due to the relative degree of change in each portfolio.7-2. Given the cash inflow and outflow figures in Problem 1 for Casio Merchants and Trust Bank, what would happen to the value of Casio's net worth as a result of thismovement in interest rates? If interest rates drop from 8 percent to 7 percent, what happens to Casio's net worth in this case and by how much in dollars does it change?From Problem #1 we find that Casio's average asset duration is 1.5996 years and average liability duration is 1.4272 years. If total assets are $125 million and total liabilities are $110 million, then Casio has a duration gap of:Duration Gap = 1.5996 – 1.4272 * mill.$125mill. $110 = 1.5996 – 1.2559= 0.3437The change in Casio's net worth would be:Change in Value of Net Worth = [-D A * r)(1r +∆* A] – [ - D L * r)(1r +∆* L]If interest rates fall from 8 percent to 7 percent,Change in NW = ⎥⎦⎤⎢⎣⎡+-⎥⎦⎤⎢⎣⎡+mill. $110x .08)(1(-.01) x 1.4272- $125x .08)(1(-.01) x 1.5996-= + 1.8514 – 1.4536= + 0.3978 million.7-3. Leland National Bank reports an average asset duration of 4.5 years, an average liability duration of 3.25 years. The bank has total assets of $1.8 billion and liabilities totaling $1.5 billion. If interest rates rise from 7 percent to 9 percent, how will Leland's net worth change? What if interest rates fall from 7 to 5 percent?The key formula is:Change in net worth = [-D A * ∆r (1r)+* A] - [ - D L *Dr (1r)+* L]For the change in interest rates from 7 to 9 percent, Leland's net worth will change to: Change in Net Worth =⎥⎦⎤⎢⎣⎡++⎥⎦⎤⎢⎣⎡++mill. $1500x .07)(1.02)( x years 3.25- -mill. x$1800.07)(1.02)( x years 4.5-= -$151.40 million + $91.12 million= -$60.28 millionOn the other hand, if interest rates decline from 7 to 5 percent we have:Change in Net Worth =⎥⎦⎤⎢⎣⎡+⎥⎦⎤⎢⎣⎡+mill. x$1500.07)(1(-.02) x yrs 3.25--mill. x$1800.07)(1(-.02) x yrs 4.5-= + $151.40 mill. - $91.l2 mill.= + $60.28 million.7-4 A bank holds a bond in its investment portfolio whose duration is 5.5 years. Its current market price is $950. While market interest rates are currently at 8 percent for comparable quality securities, an increase to 10 percent is expected in the coming weeks. What change (in percentage terms) will the bond’s price experience if market interest rates change as anticipated?Solution:percent 10.19-or 1019.)08.1()02(.5.5)1(-=-=+∆-≈∆x i i Dx P PThis bond’s price will decrease by 10.19 percent or its price will decline to $853.7-5 A bank’s dollar weighted asset duration is 6 years. Its total liabilities amount to $750 million, while its assets total $900 million. What is the dollar-weighted duration of the bank’s liability portfolio if the bank’s duration gap were zero?Given the bank has a duration gap equal to zero:Duration Gap = AssetsTotal s Liabilitie Total x D - D L Ayears 7.2 $750$900 x 0) - (6 s Liabilitie T otal Assets T otal x Gap)Duration - (D D A L ===7-6 Commerce National Bank holds assets and liabilities whose average duration and dollar amount are shown as below:What is the dollar-weighted duration of the bank’s asset portfolio and liability portfolio? What is the duration gap?D A = years 4.35 mill.$520mill. $140 x yrs. 4.5 mill. $520mill. $320yrs.x 3.6 mill. $520mill. $60 x yrs. 8.0=++D L = years 1.061 $510$20 x yrs. 0.1 $510$490 x yrs. 1.1=+years 3.31 $520$510 x yrs. 1.061 - yrs. 4.35 Assets T otal s Liabilitie T otal x D - D Gap Duration L A ===7-7. A government bond currently carries a yield to maturity of 12 percent for a maturity of 5 years and a current market price of $928. The bond pays $100 in annual interest. If the bond has a par value of $1,000 its duration can be found from:D = ⎥⎦⎤⎢⎣⎡+++++++++543210.12)(1$1100x50.12)(1$100x40.12)(1$100x30.12)(1$100x20.12)(1$100x1 / $928 = $928$3837.31 = 4.14 years7-8. Dewey National Bank holds $15 million in government bonds having a duration of 6 years. If interest rates suddenly rise from 6 percent to 7 percent, what percentage change should occur in the bonds' market price?The relevant formula is equation is: (∆P/P) = -D * [∆i/( 1+i)].We have: (∆P/P) = -6 years * [+ .01/(1 + 0.06)]= -6 years *(0.009434)=- 0.0566 or - 5.66 percent.The market price will decrease by 5.66% or the price will change to $14.151 million. Web Site Problems1. If you wanted to uncover a useful definition of what duration is, where on the web would you likely find such information?There are several places on the web that have good definitions of finance terms. After doing a search on duration gap one place that seems to have good definitions is http://newrisk.ifci.ch/. They have a glossary and define several different duration concepts. Their definition of Macaulay’s Duration is the following. “The present value weighted time to maturity of the cash flows of a fixed payment instrument or of the implicit cash flows of a derivative based on such an instrument. Originally developed as a market risk measurement for bonds (the greater the duration or 'average' maturity, the greater the risk), duration has proven useful in analyzing equity securities and fixed income options and futures. The diagram illustrates Macaulay duration as a balancing of present values of cash flows.” What is nice about this web site is that they also do an example and have accompanying graphs to illustrate the concept.2. See if you can find the meaning of Modified duration on the world wide web.The same web site listed above also has a good definition of modified duration. http://newrisk.ifci.ch/ has a good glossary for many finance related terms. Their definitionfor modified duration is “A measurement of the change in the value of an instrument in response to a change in interest rates. The primary basis for comparing the effect of interest rate changes on prices of fixed income instruments. The formula shows the small difference between modified and Macaulay duration. Many applications are not sensitive to the difference, and modified and Macaulay duration numbers are often used interchangeably. Also called Adjusted Duration.”。

商业银行：商业银行是以追求利润最大化为目标，以多种金融负债筹集资金，以多种金融资产为其经营对象，能利用负债进行信用创造，并向客户提供多功能、综合性服务的金融企业。

信用中介：是指商业银行通过负债业务，把社会上各种闲散货币资金集中到银行，通过资产业务，把它投向需要资金的各部门，充当有闲置资金者和资金短缺者之间的中介人，实现资金的融通。

作用：使闲散的货币转化为资本、使闲置资本得到充分利用、续短为长，满足这会对长期资本的需要。

支付中介：是指商业银行利用活期存款账户，为客户办理各种货币结算、货币收付、货币兑换和转移存款等业务活动。

CAMELS：美国联邦储备委员会对商业银行监管的分类检查制度，这类分类检查制度的主要内容是把商业银行接受检查的范围分为六大类：资本（capital）、资产（asset）、管理（management）、收益（earning）、流动性（liquidity）和对市场风险的敏感性（sensitivity）。

分行制：分行制银行是指那些在总行之下，可在本地或外地设有若干分支机构，并可以从事银行业务的商业银行。

这种商业银行的总部一般都设在大都市，下属所有分支行须由总行领导指挥。

优点：第一，有利于银行吸收存款，有利于银行扩大资本总额和经营规模，能取得规模经济效益。

第二，便于银行使用现代化管理手段和设备，提高服务质量，加快资金周转速度。

第三有利于银行调节资金、转移信用、分散和减轻多种风险。

第四，总行家数少，有利于国家控制和管理，其业务经营受地方政府干预小。

第五，由于资金来源广泛，有利于提高银行的竞争实力。

缺点：容易加速垄断的形成；并且由于其规模大，内部层次较多，使银行管理的难度增加等。

流动性：指资产变现的能力，商业银行保持随时能以适当的价格去的可用资金的能力，以便随时应付客户提存以及银行其他支付的需要。

其衡量指标有两个：一是资产变现的成本，二是资产变现的速度。

4.建立商业银行制度的基本原则有哪些？为什么要确立这些原则？答：（一）有利于银行业竞争。

《商业银⾏管理》课后习题答案IMChap6CHAPTER 6ASSET/LIABILITY MANAGEMENT: DETERMINING AND MEASURING INTEREST RATES AND CONTROLLING A BANK’S INTEREST-SENSITIVE GAP Goals of This Chapter: To learn how to measure a bank's exposure to interest-rate risk and how to reduce that risk exposure through coordinated management of bank assets and liabilities.Key Terms Presented In This ChapterAsset-liability Management Yield to Maturity (YTM)Asset Management Bank Discount RateLiability Management Net Interest MarginFunds Management Interest-Sensitive Gap ManagementInterest Rate RiskChapter OutlineI. Introduction: The Necessity for Coordinating Bank Asset and Liability ManagementDecisionsII. Asset/Liability Management StrategiesA. Asset Management StrategyB. Liability Management StrategyC. Funds Management StrategyIll. Interest Rate Risk: One of the Banker's Greatest ChallengesA. Nature of Interest-Rate RiskB. Forces Determining Interest RatesC. The Measurement of Interest Rates1. Yield to Maturity2. Bank Discount RateD. The Components of Interest RatesE. Bankers' Response to Interest Rate RiskIV. One of the Goals of Interest-Rate HedgingA. The Net Interest MarginB. Interest-Sensitive Gap Management1. Asset-Sensitive Position2. Liability-Sensitive Position3. Calculation of a Bank's Interest-Sensitive Gap4. Impact of Changing Interest Rates on the Gap5. Decisions that need to be Made Concerning Gap Management6. Computer Techniques for Managing Gap7. Cumulative Gap8. Strategies in Gap Management9. Limitations of Interest-Sensitive Gap Management10. Weighted Interest-Sensitive GapV. Summary of the ChapterConcept Checks6-1. What do the following terms mean: Asset management? Liability management? Funds management?Asset management refers to a banking strategy where management has control over the allocation of bank assets but believes the bank's sources of funds (principally deposits) are outside its control. Liability management is a strategy of control over bank liabilities by varying interest rates offered on borrowed funds. Funds management combines both asset and liability management approaches into a balanced liquidity management strategy.6-2. What factors have motivated banks to develop funds management techniques in recent years?The necessity to find new sources of funds in the 1970s and the risk management problems encountered with troubled loans and volatile interest rates in the 1970s and 1980s led to the concept of planning and control over both sides of a bank's balance sheet -- the essence of funds management.6-3. What forces cause interest rates to change? What kinds of risk do bankers face when interest rates change?Interest rates are determined, not by individual banks, but by the collective borrowing and lending decisions of thousands of participants in the money and capital markets. They are also impacted by changing perceptions of risk by participants in the money and capital markets, especially the risk of borrower default, liquidity risk, price risk, reinvestment risk, inflation risk, term or maturity risk, marketability risk, and call risk.Bankers can lose income or value no matter which way interest rates go. Rising interest rates can lead to losses on bank security instruments and on fixed-rate loans as the market values of these instruments fall. Falling interest rates will usually result in capital gains on fixed-rate securities and loans but a bank will lose income if it has more rate-sensitive assets than liabilities. Rising interest rates will also cause a loss to bank income if a bank has more rate-sensitive liabilities than rate-sensitive assets.6-4. What makes it so difficult for banks to forecast interest rate changes?Interest rates cannot be set by an individual bank or even by a group of banks; they are determined by thousands of investors trading in the credit markets. Moreover, each market rate of interest has multiple components--the risk-free interest rate plus various risk premia. A change in any of these rate components can cause interest rates to change. To consistently forecast market interest rates correctly would require bankers to correctly anticipate changes in the risk-free interest rate and in all rate components. Another important factor is the timing of the changes. To be able to take full advantage of their predictions, they also need to know when the changes will take place.6-5. What is the yield curve and why is it important for bankers to know about its shape or slope?The yield curve is a graphical description of the distribution of market interest rates by maturity of financial instrument. The slope of the yield curve determines the spread between long-term and short-term interest rates. In banking most of the long-term rates apply to loans and securities (i.e., bank assets) and most of the short-term interest rates are attached to bank deposits and money market borrowings. Thus, the shape or slope of the yield curve has a profound influence on a bank's net interest margin or spread between asset revenues and liability costs.6-6. What is it that a bank wishes to protect from adverse movements in interest rates?A bank wishes to protect both the value of bank assets and liabilities and the revenues and costs generated by both assets and liabilities from adverse movements in interest rates.6-7. What is the goal of hedging in banking?The goal of hedging in banking is to freeze the spread between asset returns and liability costs and to offset declining values on certain assets by profitable transactions so that a target rate of return is assured.6-8. First National Bank of Bannerville has posted the following financial statement entries: Interest revenues $63 millionInterest costs $42 millionTotal earning assets $700 millionThe bank's net interest margin must be:Net Interest = $63 mill. - $42 mill. = 0.03 or 3 percentMargin $700 mill.If interest revenues and interest costs double while earning assets grow by 50 percent, the net interest margin will change as follows:($63 mill. - $42 mill.) * 2 = 0.04 or 4 percent$700 mill. * (1.50)Clearly the net interest margin increases--in this case by one third.6-9. Can you explain the concept of gap management?Gap management involves determining the maturity distribution and the repricing schedule for a bank's assets and liabilities. When more assets are subject to repricing or will reach maturity in a given period than liabilities or vice versa, the bank has a GAP and is exposed to loss from adverse interest-rate movements based on the gap's size.6-10 When is a bank asset sensitive? Liability sensitive?A bank is asset sensitive when it has more interest-rate sensitive assets maturing or subject to repricing during a specific time period than rate-sensitive liabilities. A liability sensitive position, in contrast, would find the bank having more interest-rate sensitive deposits and other liabilities than rate-sensitive assets for a particular planning period.6-11. Commerce National Bank reports interest-sensitive assets of $870 million andinterest-sensitive liabilities of $625 million. Because interest-sensitive assets are larger than liabilities by $245 million the bank is asset sensitive.If interest rates rise, the bank's net interest margin should rise as asset revenues increase by more than the resulting increase in liability costs. On the other hand, if interest rates fall, the bank's net interest margin will fall as asset revenues decline faster than liability costs.6-12. First National Bank has a cumulative gap for the coming year of + $135 million and interest rates are expected to fall by two and a half percentage points. What is the expected change in First National's net interest income?ExpectedChange in = $135 million * (-0.025) = -$3.38 millionNet Interest IncomeWhat change will occur in net interest income if interest rates rise by one and a quarter percentage points?Expected Changein Net Interest = $135 million * (+0.0125) = +$1.69 millionIncome6-13 How do you measure a bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap? What is the interest-sensitivity ratio?The dollar interest-sensitive gap is measured by taking the repriceable (interest-sensitive) assets minus the repriceable (interest-sensitive) liabilitiies over some set planning period. Common planning periods include 3 months, 6 months and 1 year. The relative interest-sensitive gap is the dollar interest-sensitive gap divided by some measure of bank size (often total assets). The interest-sensitivity ratio is just the ratio of interest-sensitive assets to interest sensitive liabilities. Regardless of which measure you use, the results should be consistent. If you find a positive (negative) gap for dollar interest-sensitive gap, you should also find a positive (negative) relative interest-sensitive gap and a interest sensitivity ratio greater (less) than one. 6-14 Suppose Carroll Bank and Trust reports interest-sensitive assets of $570 million and interest-sensitive liabilities of $685million. What is the bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap and interest-sensitivity ratio? Dollar Interest-Sensitive Gap = Interest-Sensitive Assets – Interest Sensitive Liabilities= $570 - $685 = -$115Relative Gap = $ IS Gap = -$115 = -0.2018 or -20.18 percent Bank Size $570Interest-Sensitivity = Interest-Sensitive Assets =$570 = .8321 Ratio Interest-Sensitive Liabilities $6856-15 Explain the concept of weighted interest-sensitive gap. How can this concept aid bank’s real interest-sensitive gap risk exposure?Weighted interest-sensitive gap is based on the idea that not all interest rates change at the same speed. Some are more sensitive than others. Interest rates on bank assets may change more slowly than interest rates on liabilities and both of these may change at a different speed than thoseinterest rates determined in the open market. In, the weighted interest-sensitive gap methodology all interest-sensitive assets and liabilities are given a weight based on their speed (sensitivity) relative to some market interest rate. Fed Funds loans, for example, have an interest rate which is determined in the market and which would have a weight of 1. All other loans, investments and deposits would have a weight based on their speed relative to the Fed Funds rate. To determine the interest-sensitive gap, the dollar amount of each type of asset or liability would be multiplied by its weight and added to the rest of the interest-sensitive assets or liabilities. Once the weighted total of the assets and liabilities is determined, a weighted interest-sensitive gap can be determined by subtracting the interest-sensitive liabilities from the interest-sensitive assets. This weighted interest-sensitive gap should be more accurate than the unweighted interest-sensitive gap. The interest-sensitive gap may change from negative to positive or vice versa and may change significantly the interest rate strategy pursued by the bank.Problems6-1. A government bond is currently selling for $900 and pays $80 per year in interest for 5 years when it matures. If the redemption value of this bond is $1,000, what is its yield to maturity if purchased today for $900. The yield to maturity equation for this bond would be:$900 = $80(1YTM)1+ + $80(1YTM)2+ + $80(1YTM)3+ + $80(1YTM)4++ $80(1YTM)5+ + $1,000(1YTM)5+At an YTM of 10 percent the bond's price is $924.28, while at 12 percent its price becomes $864.40. Thus, the true YTM lies between 10% and 12%. To find the true YTM we use: 10% + 40.864$28.924$900$28.924$-- * 2% ≈ 10.81%6-2. Suppose the government bond described in problem #1 is held for 3 years and then the bank acquiring the bond decides to sell it at a price of $950. Can you figure out the average annual yield the bank will have earned for its 3-year investment in the bond?In this instance the yield-to-maturity equation can be modified slightly to find the correct holding-period yield that the bank would earn. Specifically,$900 = $80(1HPY)1+ + $80(1HPY)2++ $80(1HPY)3+ + $950(1HPY)3+At an HPY of 10% the bond's price becomes $912.31, while at 12% the bond's price is $868.56.The true holding period yield must be:10% + 912.31900912.31868.56--x 2% ≈10.56%.6-3. U.S. Treasury bills are available for purchase this week at the following prices (based upon $100 par value) and with the indicated maturities:a. $97.25, 182 days.b. $96.50, 270 days.c. $98.75, 91 days.The discount rates and equivalent yields to maturity (bond-equivalent or coupon-equivalent yields) on each of these Treasury bills are:Discount Rates Equivalent Yields to Maturitya.(10097.25)100- * 360182 = 5.44% (365x.0544)[360(0.0544x182)]- = 19.856350.1 = 5.67% b.(10096.50)100- * 360270 = 4.67% (365x.0467)[360(.0467x270)]- = 17.046347.39 = 4.91% c. (10098.75)100- * 36091 = 4.95% (365x.0495)[360(.0495x91)]- = 18.07355.5 = 5.08%6-4. The First State Bank of Ashfork reports a net interest margin of 3.25 percent in its most recent financial report with total interest revenues of $88 million and total interest costs of $72 million. What volume of earning assets must the bank hold? The relevant formula is:Net Interest Margin = .0325 = AssetsEarning mil. $72mill. $88-Then Earning Assets = $492.31 million.Suppose the bank's interest revenues rise by 8 percent and its interest costs and earning assets increase 10 percent. What will happen to Ash Fork's net interest margin?Substituting in the correct formula we have:New Net Interest Margin = .10)million(1 $492.3.10)million(1 $72.08)(1 million $88++-+= million$541.53million $79.20million $95.04-= 0.0293 or 2.93 percent.6-5. If a bank's net interest margin, which was 2.85 percent, doubles and its total assets, which stood originally at $545 million, rise by 40 percent, what change will occur in the bank's net interest income?The correct formula is:.0285 * 2 = .4)(1*million 545$Income Interest Net +or Net Interest Income = 0.057 * $763 million= $43.49 million.6-6. The cumulative interest-rate gap of Snidal State Bank and Trust Company doubles from an initial figure of -$35 million. If market interest rates fall by 25 percent from an initial level of 6 percent, what change will occur in Snidal Bank's net interest income?The key formula here is:Change in the Bank's = Change in interest rates (in percentage points) * cumulative gap Net Interest = 0.06 * -.25 x (-$35 mill.) * 2Income = 1.05Thus, the bank's net interest income will rise by 5 percent.6-7. Given: Merchants State Bank has recorded the following financial data for the past three years (dollars in millions):Current Year Previous Year Two Years Ago Interest revenues $57 $56 $55 Interest expenses 49 42 34 Loans (Excluding nonperforming) 411 408 406 Investments 239 197 174 Total deposits 487 472 467 Money market borrowings 143 118 96 Solution:Net interest margin (NIM) = Net Interest Income/Earning Assets, whereNet Interest Income = Net Interest Revenues - Net Interest ExpensesEarning Assets = Loans + InvestmentsNIM(Current) = ($57-49)/(411 + 239) = 8/650 = 0.0123 or 1.23%NIM(previous) = ($56-42)/(408 + 197) = 14/605 = 0.0231 or 2.31%NIM(Two years ago) = ($55-34)/(406 + 174) = 21/580 = 0.0362 or 3.62%The net interest margin has been declining steadily and significantly. Probable causes include greater increases in interest expenses relative to interest income due to shifts in funding mix with greater dependence on borrowed funds (more expensive sources) relative to deposits (less expensive sources). Additionally, the mix in earning assets, with greater growth in lower yielding investment securities than in higher yielding loans, is another contributor to the steadily declining net interest margin.Management needs to reevaluate its funding strategies and its loan and investment strategies. If slower loan growth is related to external forces -- for example, a weaker economy -- then less borrowing should be considered. If the slower loan growth is more internal, then more aggressive loan management would be appropriate.6-8 The First National Bank of Wedora, California has the following interest-sensitive gaps:Coming WeekNext30 DaysNext31-90 DaysMore Than90 DaysInterest - $144 $110 $164 $184 Sensitive +29 +19 29 8 Assets = $173 $129 $193 $192 Interest - $232 $ --- $ --- $ ---Sensitive 98 84 196 35 Liabilities = 36 6 --- ---$366 $90 $196 $35 GAP - $193 + $39 - $3 + $157 Cumulative GAP - $193 - $154 - $157 $0First National has a cumulative zero gap and therefore is not vulnerable to loss if interest rates rise. It does have a positive gap in two periods--the next 30 days and more than 90 days. During these particular periods a rise in interest rates would produce a short-run gain.6-9 First National Bank of Barnett currently has the following interest-sensitive assets and liabilities on its balance sheet:Interest-Sensitive Assets Interest-Sensitive LiabilitiesFederal fund loans $65Security holdings $42 Interest-bearing deposits $185Loans and leases $230 Money-market borrowings $78What is the bank’s current interest-sensitive gap? Suppose its Federal funds loans carry an interest-rate sensitivity weight of 1.0 while its investments have a rate-sensitivity weight of 1.15 and its loans and leases display a rate-sensitivity weight of 1.35. On the liability side First National’s rate-sensitivity weight is 0.79 for interest-bearing deposits and 0.98 for itsmoney-market borrowings. Adjusted for these various interest-rate sensitivity weights, what is the bank’s weighted interest-sensitive gap? Suppose the Federal funds interest rate increases or decreases one percentage point. How will the bank’s net interest income be affecte d (a) given its current balance sheet make up and (b) reflecting its weighted balance sheet adjusted for the foregoing rate-sensitivity weights?Solution:Dollar IS Gap = ISA - ISL = ($65 + $42 + $230) - ($185 + $78) = $337 - $263 = $74 Weighted IS Gap = [(1)($65) + (1.15)(42) + (1.35)(230)] - [(.79)($185) + (.98)($78)] = $65 + $48.3 + $310.5 - $146.15 + $76.44= $423.8 - $222.59= $201.21a.) Change in Bank’s Income = IS Gap * Change in interest rates= ($74)(.01) = $.74 millionUsing the regular IS Gap, net income will change by plus or minus $740,000b.) Change in Bank’s Income = Weighted IS Gap * Change in interest rates= ($201.21)(.01) = $2.012Using the weighted IS Gap, net income will change by plus or minus $2,012,0006-10 McGraw Bank and Trust has interest-sensitive assets of $225 million and interest-sensitive liabilities of $168 million. What is the bank’s dollar interest-sensitive gap? What is McGraw’srelative interest-sensitive gap? What is the value of its interest-sensitivity ratio? Is the bank asset sensitive or liability sensitive? Under what scenario for market interest rates will the bank experience a gain in net interest income? A loss in net interest income?Dollar Interest-Sensitive Gap = ISA – ISL = $225 - $168 = $57Relative Interest-Sensitive Gap = ISA – ISL = $57 = 0.2533Bank Size $225Interest-Sensitivity Ratio = ISA = $225 = 1.3393ISL $168This bank is asset sensitive. More assets will be repriced during this time period than liabilities. This means that if interest rates rise, the interest earned on assets will rise relative to the interest paid on liabilities and net interest margin will rise. However, if interest rates fall, interest earned on assets will fall more than interest paid on liabilities and net interest margin will fall.Web Site Problems1. Suppose you want to know what types of banks make the greatest use of asset-liability management tools and what their biggest ALM problems are? Where would you go on the web to try to get answers to these questions?Almost all banks are required by regulators to have some kind of ALM management in place. These techniques can be as simple as the interest sensitive gap discussion in this chapter or the duration gap management in the next chapter. However, there are many consulting firms out there that have developed specific models for managing ALM. One way to see what is out there is to do a search on bank ALM management and see some of the sites that are out there. These sites range from sites for the consulting firms to more general sites that provide a good definition and description of ALM management. Two sources that are available at this time for general information on asset-liability management are/doc/48e316c54028915f804dc2e4.html /glossaryassetliabilitymanagement.htm and/doc/48e316c54028915f804dc2e4.html /Products/nccb_asset.htm. However if you want a good discussion of specific models and the problems people are having with ALM management, one good source appears to be /doc/48e316c54028915f804dc2e4.html /. This site has several discussion groups on various ALM topics.2. If a new web model to apply ALM techniques to a bank’s risk exposure is developed, at what web site are you most likely to find a discussion of that new ALM model?The best place to get information about a new ALM model would be the/doc/48e316c54028915f804dc2e4.html / site mentioned above. If a promising new model were developed it would be sure to show up in the discussion groups mentioned above.3. If you need guidance on how to prepare bank forecasts and measure risk as part of a bank’s ALM activities which web site could be most helpful to you?If you are not willing to go to a consultant about how to develop bank forecasts and measure risk, the/doc/48e316c54028915f804dc2e4.html / web site would probably be the most helpful site. There are many discussions there about how to deal with specific measurement issues and how to find information to determine the risk of your bank compared to peer institutions.。

《商业银行管理》课后习题答案IMChap15CHAPTER 15MANAGING NONDEPOSIT LIABILITIES AND OTHER SOURCES OF BANK FUNDS Goal of This Chapter: To discover the major nondeposit sources of borrowed funds banks use today and to learn the factors a banker must consider in choosing among various deposit and nondeposit funds sources.Key Terms Presented in This ChapterCustomer Relationship Doctrine Commercial Paper Market Liability Management Repurchase Agreement (RP)Federal Funds Market Funds GapDiscount Window Interest-Rate RiskNegotiable CD Credit Availability RiskEurocurrency DepositChapter OutlineI. Introduction: The Consequences of Deposit Shortfalls and the Need to Use NondepositSources of FundsII. Liability ManagementA. Customer Relationship DoctrineB. Purpose of Liability ManagementIll. Alternative Nondeposit Sources of Bank FundsA. Federal Funds MarketB. Borrowing from the Federal Reserve Bank in the DistrictC. The Development and Sale of Large Negotiable CDsD. Eurocurrency Deposit MarketE. The Commercial Paper MarketF. Repurchase Agreements as a Source of Bank FundsG. Long-Term Nondeposit Funds SourcesIV. Choosing Among Alternative Nondeposit SourcesA. Measuring a Bank's Total Need for Nondeposit Funds - The Funds GapB. Nondeposit Funding Sources: Factors to Consider1. Relative Costs2. The Risk Factor3. Length of Time for Which Funds Are Needed4. The Size of the Borrowing Bank and Its Funding Need5. RegulationsV. Summary of the ChapterConcept Checks15-1. What is liability management?181182Liability management involves the conscious control of the funding sources of a bank,using the interest rates (yields) offered on deposits and other borrowings to regulate the inflow of funds to match the bank's immediate funding needs.15-2. What advantages and risks does the pursuit of liability management bring to a bank?Improved control over funding sources enables a bank to plan its growth more completely, but liability management opens up certain risks, particularly of the interest-rate risk and solvency (default or failure) risk variety, because it tends to be more sensitive to changes in market interest rates.15-3. What is the customer relationship doctrine and what are its implications for bank fund-raising?The customer relationship doctrine places lending to customers at the top of a bank's priority list. It argues that a bank should make all good loans - that is, all loans that meet the bank's quality and profitability standards - and then find the funds needed to fund those loans the bank decides to make. Funds uses thus become a higher immediate priority item than funds sources.15-4. For what kinds of bank funding situations are federal funds best suited?Federal funds are best suited for banks short of reserves to meet their legal reserve requirements or to satisfy customer loan demand. It satisfies this demand by tapping immediately usable funds.15-5. Chequers State Bank loans $50 million from its reserve account at the Federal Reserve Bank of Philadelphia to First National Bank of Smithville, located in the New York Federal Reserve Bank's district, for 24 hours with the funds scheduled to be returned the next day. The proper accounting entries in this case would be:Step 1 - Lending the $50 millionChequers State BankStep 2 - Using the borrowed First National Bank of Smithville funds can also be shown, though it is not mentioned in the problem. You could show First National Bank of Smithville making a loan for $50 million under Assets, giving up $50 million from its reserve account.Step 3 - Repaying the Loan of Federal FundsChequers State BankFirst National Bank of Smithville15-6. Hillside Security Bank has an excess balance of $35million in a deposit at its principal correspondent, Sterling City Bank, and instructs the latter institution to loan the funds today to another bank, returning them to its correspondent deposit the next business day. Sterling loans the $35 million to Imperial Security National Bank for 24 hours. The proper accounting entries would be:Step 1 - Lending Federal Funds to a CorrespondentHillside Security BankSterling City BankAssets LiabilitiesFederal fundspurchased +$35 mill.RespondentBank's deposit -$35 mill.183Step 2 - The Correspondent Bank Loans Funds to Another BankSterling City BankImperial Security National BankStep 3 - Repaying the Loan to the Respondent BankHillside Security BankSterling City Bank15-7. What are the advantages of borrowing from the Federal Reserve banks?Borrowing from the Federal Reserve banks is usually the lowest interest-cost source of funds. However, there are strict rules for borrowing by banks and borrowing for rate arbitrage is prohibited, although there is some evidence it does occur.15-8. How is a discount window loan from the Federal Reserve secured?A discount window loan must be secured by collateral acceptable to a Federal Reserve bank (usually U.S. government securities). Most banks keep government securities in the vaults of the Federal Reserve for this purpose. The Federal Reserve bank will also accept some government agency securities and high-grade commercial paper as collateral.18415-9. Posner State Bank borrows $10 million in adjustment credit from the Federal Reserve Bank of Cleveland. Can you show the correct entries for the granting and repayment of this loan? The proper entries are:Step 1 - Securing a Loan from the Fed.Posner State BankFederal Reserve Bank of ClevelandStep 2 - Repaying the Loan to the Fed.Posner State BankFederal Reserve Bank of Cleveland15-10. Why were negotiable CDs developed?Negotiable CDs were developed by banks to attract large corporate deposits and savings from wealthy individuals.15-11. What are the advantages and disadvantages of CDs as a bank funding source? Negotiable CDs offer a way to attract large amounts of funds quickly and for a known time period. However, these funds are highly interest sensitive and often are withdrawn as soon as the maturity date arrives unless a banker aggressively bids in terms of yield to keep the CD.18515-12. Suppose a bank customer purchases a $1 million, 90-day CD, carrying a promised 6 percent annual yield. How much in interest income will the customer earn when this 90-dayinstrument matures? What total volume of funds will be available to the depositor at the end of 90 days?Interest Income = Principal * Days to Maturity * Annual Rate To Customer 360 days Of Interestx 0.06= $1,000,000 x 1360= $15,000Total amount = Principal + Interestdue Customer = $1,000,000 + $15,000= $1,015,00015-13. Where do Eurodollars come from?Eurodollars arise from dollar deposits made in banks and at branch offices outside U.S. territory. Many Eurodollar deposits arise from U.S. balance-of-payments deficits that give foreigners claims on U.S. assets and from the need to pay in dollars for some international commodities (such as oil) that are denominated principally in U.S. dollars.15-14. How does a bank gain access to funds from the Eurocurrency markets?Access to these funds is obtained by contacting correspondent banks by telephone, wire, or cable.15-15. Suppose that JP Morgan-Chase elects to borrow $250 million from one of its London branches, then loans the borrowed funds for a week to a security dealer, and then returns the borrowed funds to its branch office in London. Can you trace through what accounting entries must be made? What if JP Morgan-Chase had decided instead to borrow the $250 million from a foreign bank not related to JP Morgan-Chase? How do the accounting entries differ in these two cases?If JP Morgan-Chase borrows from its own branch office the entries would appear as possible:Home Office of JP Morgan-Chase BankForeign Branch Office of JP Morgan-ChaseAssets Liabilities186When JP Morgan-Chase's home office makes a loan to a security dealer the entries are:Home Office of JP Morgan-Chase BankWhen the Loan is repaid and funds are returned to JP Morgan-Chase’s foreign branch we have:Home Office of JP Morgan-Chase BankForeign Branch Office of JP Morgan-ChaseIf, instead, JP Morgan-Chase borrows from another bank abroad not affiliated with JP Morgan-Chase, the entries would appear as follows:JP Morgan-ChaseU.S. Bank Serving as Correspondent to Foreign BankForeign Bank Lending to JP Morgan-Chase Bank187Deposit at U.S.CorrespondentBank +$250 mill.Eurodollar loan toJP-Morgan ChaseBank -$250 mill.When JP Morgan-Chase repays its loans we have:JP Morgan-Chase BankU.S. Bank Serving as Correspondent to Foreign BankForeign Bank Lending Eurodollars15-16. What is commercial paper?Commercial paper is a high-quality, short-term debt obligation issued by a large corporation with an excellent credit rating to provide for short-term cash needs.15-17. Suppose that the finance company affiliate of Citicorp issues $325 million in 9 day commercial paper to interested investors and uses the proceeds to purchase loans from Citibank. What accounting entries should be made on the balance sheets of Citibank and Citicorp's finance company affiliates?The appropriate entries for the above transaction are:Step 1 - Commercial Paper is Sold by the Affiliated Finance Company188CitibankFinance AffiliateStep 2 - The Affiliated Finance Company Purchases Loans from CitibankCitibankFinance Affiliate15-18. How do RPs arise?RPs are agreements to sell securities temporarily by a borrower of funds to a lender of funds with the borrower agreeing to buy back the securities at a guaranteed price at a set time in the future.15-19. What are the principal advantages to the borrower of funds under an RP agreement?RPs are a low-cost and low-risk way of borrowing loanable funds for short periods of time (usually 3 or 4 days). They are low risk because they are essentially a collateralized loan. The securities that are sold as part of the agreement act as collateral.15-20. What long-term nondeposit funds sources do banks draw upon today? How do these interest costs differ from most money market borrowings?Long-term nondeposit funds include mortgages, capital notes, and debentures. Generally, the interest costs on these funds sources are substantially higher than money market loans but are more stable usually.15-21. What is the funds gap for a bank?189The funds gap is the difference between current and projected credit and deposit flows that creates a need for raising additional bank reserves or for profitably investing any excess reserves that may arise.15-22. Suppose that Bankers Trust Company of New York estimates next week's new loan demand at $325 million and customer drawings on confirmed credit lines of $510 million, while new deposits next week are projected to equal $680 million. If the bank also plans to acquire $420 million in corporate and government bonds next week, what is the bank's projected funds gap?The expected funds gap (with all figures in millions of dollars) would be:Projected = $325 + $510 + $420 - $680 = $575.Funds Gap15-23. What factors must a bank manager weigh in choosing among the various nondeposit sources of bank funding available today?A bank manager must weigh factors such as relative costs, risk, length of time funds are needed, size of bank and its funding need, and regulations in choosing what nondeposit fundssources to use. Other factors held constant, bank management will seek out the lowest cost nondeposit funding sources available subject to the risk of availability problems and the danger of interest-rate volatility. When funds are needed for longer periods, negotiable CDs and Eurodollars are usually the preferred sources whereas very short-term cash needs usually will be met by Federal funds and RPs or by borrowing from the Federal Reserve banks. However, regulations impose reserve requirements on some funding sources (e.g., CDs) which increases their cost and these rules limit access to some sources (e.g., borrowings from the Fed's Discount Window).Problems15-1. Robertson State Bank of Clayton decides to loan $70 million of its reserves at the Fed to Tenison National Security Bank for 24 hours. In turn, Tenison National plans to loan the funds to a security dealer for 24 hours and then return the funds to Robertson State Bank. The correct accounting entries are: Step 1 - Lending the $70 millionRobertson State Bank190Tenison National BankStep 2 - Loaning the Borrowed FundsTenison National BankStep 3 - Repaying the Loan of Federal FundsRobertson State BankTenison National Bank15-2. Masoner National Bank holds most of its correspondent deposits with Flagg Metrocenter Bank which automatically reinvests any surpluses which Masoner may have. This morning Masoner has a correspondent deposit surplus of$11 million expected to last for 48 hours. Flagg will loan this surplus for two business days to Secoro Central City Bank and then the funds will be returned to Masoner's correspondent deposit at Flagg Metrocenter Bank.Step 1 - Lending Federal Funds to a CorrespondentMasoner National Bank191loaned +11 mill.Flagg Metrocenter BankStep 2 - The Correspondent Bank Loans Funds to Another BankFlagg Metrocenter BankSecoro Central City BankStep 3 - Repaying the Loan to the Respondent BankMasoner National BankFlagg Metrocenter Bank19215-3. Relgade National Bank secures adjustment credit from the Federal Reserve Bank of San Francisco in the amount of $32 million for a term of 7 days. Please show the proper entries for granting this loan and then paying off the loan.The correct entries are:Step 1 - Receiving a Loan from the FedRelgade National BankFederal Reserve Bank of San FranciscoStep 2 - Repaying the Fed's loanRelgade National BankFederal Reserve Bank of San Francisco15-4. Itec Corporation purchases a 45-day negotiable CD with a $5 million denomination from Payson Guaranty Bank andTrust, bearing a 6.75 percent annual yield. How much in interest will the bank have to pay when this CD matures? What amount in total will the bank have to pay back to Itec at the end of 45 days?Interest Owed 45To Itec Corp. = $5,000,000 * 360 * 0.0675By Bank= $42,187.50193Total amountowed Itec = $5,000,000 + $42,187.50in 45 days in principle in interest= $5,042,187.5015-5. International Commerce Bank borrows $125 million overnight through a repurchase agreement (RP) collateralized by Treasury bills. The current RP rate is 4.5 percent. How much in interest cost will the bank have to pay?Interest cost= $15,624.50of RP = $125,000,000 x 0.045 x 136015-6. National Commerce Bank of New York expects new deposit inflows next month of $330 million and deposit withdrawals of $275 million. The bank's economics department has projected the new loan demand will reach $621 million and customers with approved credit lines will need $266 million in cash. The bank will sell $480 million in securities, but plans to add $155 million in new securities to its portfolio. What is the bank's projected funds gap?The estimated funds gap (with all figures in millions of dollars)is:Projectedfunds gap = $621 + $266 + [ $155 - $480 ] - [ $300 - $275 ] = $537 million15-7. First National borrowed $150 million in Federal funds from JP Morgan Chase Bank in New York City for 24 hours. After the loan was repaid JP Morgan-Chase loaned $100 million in federal funds to Texas Commerce Bank of Houston.(a) Illustrate these transactions using T-account entries.194(b) The interest income generated for JP Morgan-Chase from the above transactions was:1. Manufacturers' Loan: 0.0785 X $150 Million X 1/360 = $32,7082. Texas Commerce Loan: 0.0792 X $100 Million X 2/360 = $44,00015-8. BancOne of Ohio issues a 3-month (90-day) negotiable CD for $14 million to Travelers Insurance, bearing an annual 360-day yield of 8.47 percent. The value of the CD (including interest income) on its maturity date is:= Principal + (Principal * Days to Maturity / 360 * Annual Interest Rate)= $14 million + ($14 million * 90 / 360 * 0.0847) = $14.29645 millionThe amount of interest income Travelers will earn is:$14 million *90 / 360 * 0.0847 = $296,450.On the basis of a 365-day year Travelers' will earn365/360 * 0.0847 = 0.0859 or 8.59%.15-9. As a result of heavy loan demand experienced by banks within its holding company,195Interstate National Bank plans to raise $850 million in short-term funds this week, of which about $835 million will be used to meet these new loan requests. Current annual interest rates on alternative sources of funds are:Market Interest Rates Noninterest Cost RatesFederal Funds 8.73% 0.25%Negotiable CDs 8.69 0.25Eurodollars 9.11 0.35Commercial paper 8.65 0.50Fed. Discount Rate 7.25 0.25Calculate the effective cost rates on the above sources for Interstate and make a management decision on what sources to use.Effective Federal Funds Cost Rate =Million$835Million $850x0.0025Million$850x0.0873+=million835$million$2.125million $74.205+Effective CD Cost Rate = million$835million $850*0.0025million$850*0.0869+=million$835million$2.125million $73.865+= 9.10%Effective Eurodollar Cost Rate = million$835million $850*0.0035million$850*0.0911+=million$830millionmillion77.435$+= 9.63%Effective Commercial Paper Cost Rate = million835$million $850*0.0050million$850*0.0865+196=million$835million$4.25million $73.525+= 9.31%Effective Cost of Borrowing from the Fed = million835$million $850*0.0025$850*0.0725+=million835$million$2.125million$61.625+= 7.63%The cheapest source of all would be borrowing from the Federal Reserve bank. However, the bank has borrowed from the Fed in each of the past two weeks. Thus, it has probably come close to "wearing out its welcome" at the Reserve bank and, at least for the next week, should probably plan on borrowing from the next cheapest source - in this case, the Federal funds market.15-10. Hamilton Security Bank wants to raise $80 million in money market funds to cover a loan request from one of its largest corporate customers, who needs a 6-week loan. However, current forecasts call for a rise in money market interest rates over the next six weeks. Current money market rates are given below:Source Current RateFederal Funds 8.72%Discount Window at the Federal Reserve 7.00CDs (prime rated): One Month 8.45Three Months 8.49Six Months 8.58Eurodollar Deposits(Three Months) 8.58Commercial Paper: One Month 8.55Three Months 8.42What would you recommend to the bank's funds management department regarding how and where to raise the funds needed?Federal funds could be used to fund this loan, but not only do they happen to be the most expensive source in terms of interest cost right now, but also the Fed funds rate is very sensitive to market pressures and, therefore, will rise along with other market interest rates if the bank's forecast turns out to be correct. The Discount Window at the Federal Reserve looks very attractive, but the Fed prohibits borrowing to relend. Either 3-month CDs or 3-month commercial paper appear to represent good alternatives because the bank, presumably, can lock in the interest cost to fund this loan for the entire life of the loan. Assuming that the money market shares the expectations of the bank that interest rates will rise over the next six weeks, the bank will very likely have to pay a premium over the current rates on either the CDs or commercial paper. However, locking in these rates would still represent the better alternative.197Alternative Scenario:Given: Hamilton's economists are wrong and money market rates decline significantly over the next six weeks. How might your recommendations to the bank's funds management department change on how and where to raise the funds needed?Significantly declining interest rates would make shorter-term sources much more attractive to the bank. Federal funds, for example, although currently the most expensive source, maywell be a good alternative, since the federal funds rate is very sensitive to interest rate changes. One-month CDs would also be a good alternative, as would one-month commercial paper. With the shorter maturities, the bank could readjust its costs downward as the interest rates continue to fall, maintaining the spread between the rate the bank is charging the borrower, which will be declining as rates fall, and the rate it is paying for its funds.Web Site Problems1. Which banks in the U.S. banking system seem to rely most heavily on deposits as a source of funding and which on nondeposit borrowings and liability management? To find out, select the name of a small local bank (or banks) in your area and look it up in the appropriate FDIC web site. Enter the bank’s name, city and state and determine its ratio of total deposits to total assets in the latest report available. Now compare this ratio to the same deposit to asset ratio for Bank of America and JP Morgan-Chase Bank. What did you find? Can you explain the reasons behind the different ratio values you observed?After examining the UBPR for the First National Bank of Edmond as well as Bank of America and JP Morgan-Chase (of New York) the following table can be formed.As can be seen, the First National Bank of Edmond has a much higher depositor base. Both of the other banks are very large banks and large banks tend to rely less on core deposits. However there are differences even between these large banks. JP Morgan-Chase is in New York City and has even less of a depositor bases that Bank of America. It must rely more heavily on liability management than Bank of America.198。

商业银行管理学练习第六章1、解：补全损益表的空缺项目：计算过程：总利息收入=贷款利息与服务费收入+证券利息与股利=65+12=77利息总支出=存款利息支出+非存款借款的利息支出=49+6=55利息净收入=总利息收入-利息总支出=77-55=22非利息总支出=工资和雇员福利+营业费用+其他非利息开支=12+5+3=20税前经营收入=利息净收入-贷款损失准备金+（非利息收入和服务费收入-非利息净支出）=22-2+（7-20）=7税前净经营收入=税前经营收入+证券收益=7+1=8净运营收入=税前净经营收入-税赋=8-1=7净收入=净运营收入+特别项目净收入=7-1=6ROE=NI/TE=6/80=7.5%ROA=NI/TA=6/980=0.61%利息净收益=NII/TA=22/980=2.24%资产利用率=总收益/总资产=（77+7）/980=8.57%权益乘数=总资产/权益资本-980/80=12.25税收管理效率=净利润/税前净经营利润=6/8=75%（中文书p142页公式与PPT略有不同）非利息净收益=-13/980=-1.33%经营净收益=净经营收益/总资产=7/980=0.71%收益率=（利息收入/生息资产）-（利息支出/付息债务）=（77/830）-（55/650)）=0.82%净利润率=净利润/总收益=6/(77+7)=7.14%支出控制效率=税前净经营收入/总收益=8/84=9.52%资产管理效率=总收益/总资产=84/980=8.57%基金管理效率=总资产/权益资本=12.25运营效率比率=总营业费用/总营业收入=78/85=91.76%分析：该家银行运营效率较高，且在税收管理上有一定的成效，但是的ROA不高，在非利息净收益这块为负，所以银行需要考虑在利息收入外拓展业务经营面，且从资产负债表中看出定期存款占据的比重较大，银行应该要考虑一定的流动性安全的问题。

2、解：根据表格，可知：ROE=(2100-1400+21-16+700-900-100)/(30000-27000)=405/3000=13.5%ROA=(2100-1400+21-16+700-900-100)/30000=1.35%净利息收益率=(2100-1400)/30000=2.33%每股收益=405/5000=0.081非利息净收益率=(700-900)/30000= -0.67%净运营收益率=(2100+700-1400-900-100)/30000=1.33%（1）若都上升5%ROA=（2205-1470+21-16+735-945-100）/(30000-27000)=430/3000=14.33ROE=（2205-1470+21-16+735-945-100）/30000=430/30000=1.43%每股收益=430/5000=0.086三个指标都有所上升（2）若都下降5%ROA=(1995-1330+21-16+665-855-100)/(30000-27000)=380/3000=12.67%ROE=(1995-1330+21-16+665-855-100)/30000=1.27%每股收益=380/5000=0.076三个指标都有所下降第七章1、答：由题意可知：该银行的缺口GAP=RSA-RSL=8.7-6.25=2.45（亿美元）所以该银行的类型是资产敏感型。

CHAPTER 17BANK LENDING: POLICIES AND PROCEDURESGoal of This Chapter: To discover the features and characteristics of a sound bank loan policy and to examine some of the characteristics of problem bank loans.Key Terms Presented in This ChapterReal Estate Loans Cash flowFinancial Institutions Loans NoteAgriculture Loans Loan Commitment AgreementCommercial and Industrial Loans CollateralLoans to individuals Restrictive CovenantsWholesale lenders WarrantiesRetail Credit Events of DefaultCAMELS Rating Loan reviewCash Loan WorkoutsChapter OutlineI. Introducing Lending - The Principal Reason for the Existence of Banks and the Center ofBank RiskII. Types of Loans Made by Banks (Classified by Purpose)A. Real Estate LoansB. Financial Institutions LoansC. Agricultural LoansD. Commercial and Industrial LoansE. Loans to IndividualsF. Miscellaneous LoansG. Lease Finance ReceivablesIll. Factors Determining the Growth and Mix of Bank LoansA. Profile Characteristics of a Bank's Market AreaB. Role of Loan ParticipationsC. Role of Bank Size (Wholesale vs. Retail Lenders)D. Experience and Expertise of ManagementE. Bank's Loan PolicyF. Expected Yield to the BankIV. The Regulation of LendingA. The Loan Limit RuleB. Limitation on Real Estate LendingC. The Community Reinvestment ActD. Truth-in-Lending LawsE. Equal Credit Opportunity Laws221F. International Lending RulesG. Condition Ratings of Banks (The CAMELS)H. Examiner Loan RatingsV. Establishing A Written Loan PolicyA. Benefits of a Written Bank Loan PolicyB. Contents of a Written Bank Loan PolicyVI. Steps in the Lending ProcessA. The Sources of Loan Requests and Customer Contact ReportsB. Interviewing the Credit Customer and the Character IssueC. Site VisitsD. Processing the Loan RequestE. Monitoring Compliance With the Terms of a LoanVII. Credit Analysis: What Makes a Good Loan?A. Is the Borrower Credit Worthy?1. Character2. Capacity3. Capital (and Cash Flow)4. Collateral5. Conditions6. ControlB. Can the Loan Agreement Be Properly Structured and Documented?C. Can the Bank Perfect Its Claim Against the Borrower's Collateral?1. Reasons for Taking Collateral2. Common Types of Loan Collateral3. Other Safety Devices to Protect a LoanVIII. Sources of Information About Loan CustomersA. Credit BureausB. Publications of Financial InformationC. Information on Economic ConditionsIX. Parts of A Typical Loan AgreementA. The NoteB. Loan Commitment AgreementC. CollateralD. Covenants (Affirmative and Negative)E. Borrower Guaranties or WarrantiesF. Events of DefaultX. Loan ReviewA. The Purpose of Loan ReviewB. Elements of a Good Loan ReviewXI. Handling Problem Loan SituationsA. Signs of a Developing Problem Loan SituationB. Steps in Maximizing the Recovery of Bank Funds from a Problem Loan (the LoanWorkout Problem)XII. Summary of the Chapter222Concept Checks17-1. In what ways does a bank's lending function affect the economy of a local area or region?Bank credit is one of the most important sources of capital that fuels local economic growth and development. When banks make loans to support the development of new businesses and to aid the growth of existing businesses, new jobs are created and there is a greater flow of income and spending throughout the local economy.17-2. What are the principal types of loans made by banks?Bank loans are usually classified by the purpose of the loans. The most common classifications are real estate loans, commercial and industrial loans, loans to financial institutions, credit-card and other loans to individuals, and agricultural production loans Bank loans may also be classified by maturity - over one year and one year or less.17-3. What factors appear to influence the growth and mix of bank loans?The particular mix of any bank's loan portfolio is shaped by the characteristics of its market area, the expected yield and cost associated with each type of loan, bank size, the experience of management, the bank's written loan policy and regulations.17-4 A bank's cost accounting system reveals that its losses on real estate loans average 0.45 percent of loan volume and its operating expenses from making these loans average 1.85 percent of loan volume. If the gross yield on real estate loans is currently 8.80 percent, what is the bank's net yield on these loans? Suppose that the same bank reports operating expenses of 2.95 percent and losses of 0.70 percent on loan volume and a net yield of 6.30 percent on commercial loans. What is the bank's gross yield on commercial loans?The bank's net yield on real estate loans must be:Net Yield on Real Estate Loans = 8.80% - 0.45% - 1.85% = 6.50%The gross yield on commercial loans would be:Gross Yield on Commercial Loans = 2.95% + 0.70% + 6.30% = 9.95%17-5. Why is bank lending so closely regulated by state and federal authorities?Bank lending is closely regulated because it is the center of risk for most banks. National banks in the U.S. are limited in the loans they can make to a single borrower by the size of each bank's capital and surplus. They also must limit their real estate loans based on the size of the bank's total time and savings deposits or capital. Discrimination against borrowers on the basis of their age, sex, religion, or national origin is prohibited by U.S. law. U.S. banks also cannot discriminate against borrowers from certain neighborhoods in their service areas.22317-6. What is the CAMELS rating and for what is it used?The CAMELS is a system used by federal bank examiners for evaluating the overall condition of a bank based upon the adequacy of its capital, the quality of its asset portfolio, its management quality, the adequacy of its earnings, its liquidity and its sensitivity to market risk.17-7. What should a good written bank loan policy contain?A good written bank loan policy should specify the goals of the bank's loan portfolio and program, describe an ideal loan portfolio for the bank and indicate the types of loans the bank normally will refuse to make, specify who has the authority to approve loans of varying type and size, the documentation requirements of different types of loans, and supply guidelines on loan pricing and collateralization for loan officers.17-8. What are the typical steps in a loan request from a customer?A loan officer usually takes or receives such a request initially and passes it along to the credit analysis division for technical review. Usually the recommendations of both the credit analyst and the loan officer are directed to a loan supervisor or loan committee for approval.17-9. What three major questions or issues are considered in evaluating nearly all loan requests?The three key issues with every loan:1. is the borrower credit worthy?2. can the loan agreement be properly structured and documented?3. can the bank perfect its claim against the borrower's collateral?17-10. Explain the meaning of the following terms: character, capacity, cash, collateral, conditions, and control?a. Character -- is the borrower serious about the purpose of a loan and intends to repay?b. Capacity -- does the borrower have the legal authority to sign and commit to a binding loanagreement?c. Capital -- does the borrower generate sufficient income or cash flow to properly service aloan?d. Collateral -- does the borrower possess assets of sufficient quality and value to backstop aloan?e. Conditions -- does the outlook for the economy and industry where a borrower is situatedadd strength to a loan?224f. Control -- does the proposed loan meet the bank's own quality standards and the standardsof bank examiners?17-11. A business borrower reports net profits of $2.1 million in the current year compared to $2.7 million the preceding year. Depreciation and other noncash expenses amounted to $0.7 million versus $0.6 million the previous year. Accounts payable for the current year amount to $20.9 million compared to $24.2 million the year before, while inventories total $8.4 million during the most recent year versus $7.8 million the previous year. In contrast, accounts receivable rise from $16.8 million the previous year to $20.1 million at the conclusion of the current year. The firm's projected cash flow can be estimated by either of two methods discussed in the text: Cash Flow Estimate A = $2.1 million + $0.7 million +($20.9 million - $24.2 million)for the Current Year - ($8.4 million - $7.8 million) –($20.1 million – $16.8 million)= - $4.4 million.Cash Flow Estimate B = $2.1 million + $0.7 million = $2.8 millionfor the Current YearThe previous year the cash flows amounted to:Cash Flow Estimate A = Not enough information to estimate thisfor the Previous YearCash Flow Estimate B = $2.7 million + $0.6 million = $3.3 millionFor the Previous YearClearly the firm's cash flow is falling, which suggests that the bank needs to find out the reasons for this decline before committing any of the bank's funds.17-12. What sources of information are available today for bank loan officers and credit analys ts to use in evaluating a customer loan application?Among the most widely used sources of information used in evaluating loans are financial statements supplied by the borrower and industry-wide performance ratios for comparison purposes supplied by such organizations as Dun and Bradstreet and Risk Management Associates (RMA).17-13. What are the principal parts of a loan agreement? What is each part designed to do?The most important parts of loan agreements include a signed note, a listing of covenants, documents specifying loan collateral, and a section describing what events or happenings will trigger default.17-14. What is loan review? How should a loan review be conducted?225Loan review is a process of periodic investigation of outstanding loans on a bank's books to make sure each loan is paying out as planned, all necessary documentation is present, and the bank's loan officers are following the institution's loan policy. While banks today use a variety of different loan review procedures, a few general procedures are followed by nearly all banks. These include:1. Carrying out reviews of all types of loans on a periodic basis.2. Structuring the loan review process carefully to make sure the most importantfeatures of each loan are checked.3. Reviewing the largest loans most frequently.4. Conducting more frequent reviews of troubled loans.5. Accelerating the loan review schedule if the economy slows down or if industries inwhich the bank has made a substantial portion of its loans develop significantproblems.Loan review is not a luxury but a necessity for a sound bank lending program. It not only helps management spot problem loans more quickly but also acts as a continuing check on whether loan officers are adhering to a bank's loan policy. For this reason, as well as to promote objectivity in the loan review process, many of the largest banks separate their loan review personnel from the loan department itself. Loan reviews also aid senior management and the bank's board of directors in assessing the bank's overall exposure to risk and its possible need for more capital in the future.17-15. What are some warning signs to bank management that a problem loan may be developing?Problem loans are often characterized by reduced communication between borrower and lender, delays in receiving financial reports, evidence of reevaluations of assets (such as inventory or pension-plan assets), declining stock prices, changes in management, or the restructuring of other loans the borrower has taken out.17-16. What steps should a banker go through in trying to resolve a problem loan situation?The most important first step is to move quickly to contact the borrower, to ascertain if the borrower understands the nature of the loan problem, to explore for creative solutions to the problem, and to get the borrower to reach a decision on the best solution possible.Problems17-1. Karakee V. Corporation, seeking renewal of its $12 million credit line, has the following cash flow estimates (in millions of dollars) based upon the data recently reported by the company to Whelington National Bank:Proj. for19X1 19X2 19X3 19X4 Next Year226Cash Flow Estimate 1(Net Profit + Noncash Expenses) $15.6 $15.8 $16.0 $15.1 $14.5Cash Flow Estimate 2(Net Profits + Noncash Expenses+ Added Accounts Payable –Added Accounts Receivableand Added Inventories) - $15.7 $16.1 $15.2 $14.2Clearly, under both measures of cash flow Karakee is experiencing a significant decline in its actual and estimated cash flow, which suggests a careful look at the firm's financial statements and operations before renewing its credit line for the full amount requested. Of special concern is the steady buildup in accounts receivable and inventory as well as the firm's growing reliance on its suppliers for credit (accounts payable).17-2. Silsbee Manufacturing and Service Company has an appliance inventory currently valued at $16,357,422 and accounts receivable of $8,452,867. The text says that inventory loans commonly amount to 30 percent to 80 percent of the inventory's estimated market value and account-receivable based loans commonly amount to 40 to 90 percent of estimated market value.These figures suggest that the minimum size credit line available would be:Minimum-Size Credit Line Available = 0.30 x $16,357,422 + 0. 40 x $8,452,876= $4,907,227 + $3,381,147= $8,288,374.The maximum sized credit line available would be:Maximum-Size Credit Line Available = 0.80 x $16,357,422 + 0.90 x $8,452,876= $13,085,938 + $7,607,588= $20,693,526.17-3. The particular C of credit represented by each piece of information presented in this problem was as follows:a. Collateralb. Controlc. Characterd. Cashe. Capacityf. Conditionsg. Character h. Cash i. Conditionsj. Control k. Capacity l. Collateral17-4. ButelI Manufacturing has an outstanding $11 million loan with Citicenter Bank. Selected items reported to the bank by the company do indicate the possible development of a problem loan situation. For one thing, Butell's cash account has fallen sharply in the latest month after several months of a substantial uptrend and the firm's liquidity ratio of current assets to current liabilities has declined significantly in the last 3 months. Decreases in the firm's liquidity position may be signaling declining sales and/or difficulty in maintaining enough cash to meet near-term liabilities.227Another possible cause for concern centers around Butell's capital structure as its ratio of equity capital relative to debt financing is falling, indicating that creditors (including Citicenter Bank) are providing a larger share of the firm's capitalization. Thus, each creditor is becoming less well secured. However, these changes in liquidity and capital structure may only reflect normal seasonal pressures and may not be real problems for the bank, especially because other aspects of Butell's recent performance--its stock price, earnings before interest and taxes, and ROA seem to be improving.Perhaps of greater moment is the decline of sales revenue below Butell's projections. As of the latest month sales revenue reached $290 million versus a projection of $298 million. Citicenter Bank must determine the causes of this sales shortfall to see if the firm is encountering increasing resistance to sales of its product lines. However, even this trend may not be cause for alarm because sales may be so volatile in Butell's industry that few analysts put any faith in sales projections. The bank's loan officer needs to review the customer's earlier sales projections and sales revenue to determine if there is a real cause for concern.Butell has indicated a recent switch in inventory and depreciation accounting methods. Citicenter's loan officer would do well to inquire into the reasons for these changes because they may reflect an attempt by the firm to offset actual or potential future losses in some aspect of its operations.17-5. Which of the following restrictive loan covenants are affirmative or negative covenants?a. Restrictions on payment of dividends represent negative loan covenants.b. A requirement to insure selected assets is an affirmative loan covenant.c. Restrictions against taking on new debt represent negative loan covenants.d. The requirement 6f filing periodic financial statements with the bank is anaffirmative loan covenant.e. A requirement of securing bank approval before adding to a borrower's stock offixed assets is considered a negative loan covenant.f. Requiring a borrowing customer to maintain a current ratio -- a liquidity measure--no lower than 1 .5x is an affirmative loan covenant.g. The stipulation that prior bank approval of a proposed merger must be obtained is anegative loan covenant.16-6. The particular C of lending which applies to each loan factor is listed below:Character Capacity Cash Collateral Conditions ControlCredit rating Corporateresolution LiquidreservesInsurancecoverageCompetitiveclimate forcustomersproductAdequatedocumentationExperience of other lenders Driver’slicenseExpensecontrolAssetspecializationExpectedmarket shareWritten loanpolicyPurpose of Social Inventory Guarantees Business Changes in228loan security card turnover andwarrantees cycle accountingstandardsPayment record History offirmProjectedcash flowsAssetliquidationPerformanceof comparablefirmsBanking lawsand regulationsCustomeridentityPrice earningsratioChanges intechnologyIndustryoutlookPartnershipagreementCoverageratiosObsolescence InflationoutlookManagementqualityLiens Wages in thelabor marketLeverage FuturefinancingneedsEconomists’ForecastsAccountsReceivablesTurnoverAccountsPayableTurnoverWeb Site Problems1. If you wanted to find out about regulations applying to bank lending where would you look on the web? Why do you think this area has become so important lately?Most of the banking regulatory agencies have information about lending regulations. One place that I found that listed the latest regulations on the web was the Kansas City Federal Reserve at /bs&s/finalreg/regsmain.htm. I think bank lending has become important recently for several reasons. One reason is that the economy has been doing so well and many individuals and businesses have increased their borrowing. However, since the economy is starting to cool this area will continue to be important as bankruptcies and loan losses rise.2. Are you interested in becoming a loan officer? A credit analyst? Where on the world wide web could you find information on new job listings in banking?There are many places that list banking jobs. One place that I found after doing a search was /. On this web site you could search by state or look at all states. People can post resumes on this site as well as look for a job or look for a potential employee.3. Suppose you were hired as a consultant by a bank’s loan department to look at their controls to minimize loan risk. You know the bank is concerned that their principal government supervisory agency is going to take a hard look shortly at how their loan department is managed and the risks in its loan portfolio. Where on the Internet could you look to find some guideline on how to control and manage bank credit risk? List two or three suggestions for credit risk control that you found at the web site or sites you investigated.229The Basel Committee has a list of publications which include several documents related to improving a bank’s credit risk management at /bcbs/publ.htm. Many of these publications provide detailed advice as to how to deal with credit risk. For example in the Basel Committee’s publication of Principles for the Management of Credit Risk, they mention the areas that this publicat ion can help with. This publication of the Basel Committee states “The sound practices set out in this document specifically address the following areas: (i) establishing an appropriate credit risk environment; (ii) operating under a sound credit-granting process; (iii) maintaining an appropriate credit administration, measurement and monitoring process; and (iv) ensuring adequate controls over credit risk. This publication can be read for more specific information about each of these areas. This should help the consultant address these issues for their bank.230。

商业银行管理学_湖南大学中国大学mooc课后章节答案期末考试题库2023年1.计算净利差率时，利息支出包括的因素有参考答案:存款利息支出_同业存入利息支出_发行债券利息支出_拆入款项利息支出2.商业银行用于弥补尚未识别的可能性损失的准备金是参考答案:一般准备金3.《巴塞尔资本协议》规定商业银行的核心资本与风险加权资产的比例关系为参考答案:≥4%4.利率浮动的资产中有一部分来自固定利率负债的情形属于参考答案:正缺口5.持续期缺口为商业银行资产与负债（）的长期决策提供了一个综合性的测算指标。

参考答案:利率风险管理6.商业银行中长期借款包括（）。

参考答案:发行长期金融债券7.商业银行的被动负债是（）。

参考答案:吸收存款8.使商业银行负债成本最低的存款为（）。

参考答案:同业存款9.一笔或一组金融资产或负债以现值方式收回其价值的时间是指参考答案:持续期_投资回收期10.存款按存款资金性质及计息范围划分为财政性存款和（）。

参考答案:一般性存款11.商业银行存款管理的目标不包括（）。

参考答案:降低存款的流动性12.聚合信用风险模型频带的划分方法包括参考答案:基于泊松分布_加权平均13.商业银行人员的素质包括参考答案:智力素质_知识素质_品德素质_心理素质14.下列哪些项目属于商业银行的资产？参考答案:存放同业款项_贷款15.将不同时期贷款的最高点连成线, 这就形成了商业银行的 ( )。

参考答案:长期贷款趋势线16.经营活动产生的现金流量包括参考答案:向中央银行借款净增加额_客户贷款及垫款净增加额_向其他金融机构拆入资金净增加额_客户存款和同业存放款项净增加额17.商业银行报表附注中要披露的内容包括参考答案:资产负债表日后非调整项目的说明_或有和承诺事项的说明_重要会计政策_报表的编制基础18.下列措施中, 属于风险补偿机制范畴的有 ()。

参考答案:抵押 (或质押)_提取呆账准备金19.在比较分析中通常采用的指标评价标准有参考答案:历史标准_同业标准_计划标准_法定标准20.持有者有权在某一时刻以敲定的价格购买某一持有者有权在某一时刻以敲定的价格购买某一基础金融工具，但也有权不购买属于基础金融工具，但也有权不购买属于参考答案:看涨期权21.股权收益率分解成三因素进行分析，包括的因素有参考答案:资产利用率_股东权益乘数_收入净利率22.体现在劳动者身上的资本属于参考答案:人力资本23.担保业务包括参考答案:备用信用证_银行承兑汇票_各类保函24.下列属于负债管理策略的有参考答案:金融产品销售管理_资金购买管理25.商业银行资产管理战略的管理方式包括参考答案:商业性贷款管理_资产转换管理_预期收入分析26.流动性管理的必要环节包括（）。