Bank Analysis School eBook

Impact of Asset Quality Issues

Diminished earnings and capital  Increased provisions and legal/collection expenses.  Non-earning assets (e.g. non-accrual loans, OREO).

Reduced borrowing capacity  Removal of problem assets from collateral pool.  Increased collateral “hair cuts”.  Elimination of borrowing lines.

FHLB Borrowing Example

Falling Below Well Capitalized Impacts Liquidity

Deposit Rate caps (1) average national rate + 75bps, or (2) for maturity deposits 120% of current treasury yield on similar maturity, and non-maturity at Fed Funds rate + 75bps

Brokered deposits restricted  Banks may not accept or renew brokered deposits – no waivers.

(Part 337.6 & 337.7 FDIC Rules and Regulations)