Bank Analysis School - September 2023

Internal Use Only

Four High Risk Characteristics Asset quality problems At risk of falling below well capitalized Heavy reliance on wholesale funding Limited amount of liquid assets

Internal Use Only

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