Question

I am looking for the answer to question 30 of ch.19 of FInancial Insitutions Management by Cornett and Saunders. It is regarding the risk category in addition to the dollar value of deposit insurance premiums.

Million Bank has a composite CAMELS rating of 2, total risk based capital ratio of 9.8%, Tier 1 risk based capital ratio of 6.8%, CET1 leverage ratio of 6.0%, and a tier 1 leverage ratio of 4.9%, l. The avg total assets are $500 mil, avg Tier 1 equity of $24.5 mil. What deposit insurance risk category does the bank fall into? What is the bank’s deposit insurance assessment rate, assuming DIF reserve ratio 1.18%, the dollar value of deposit insurance premiums?

Answer 1

Under The regulation of FDIC, The authority uses the insured institutions on six factors such as Capital, Asset quality, Management, Earnings, Liquidity and sensitivity markets to allocate the rating to the financial institutions on risk based deposit premiums ranging from 1 to 5 with 1 being the best rating.

The CAMEL calculates the score for the deposit insurance premiums by allocating different weights to these factors.

Therefore, the deposit risk category for the Million bank is group "A" since the bank is financially sound in meeting the day to day withdrawal obligations on the behalf of customer and has total risk based capital ration more than 8%. Therefore, the federal rating group defined under CAMEL analysis is "A" for the bank.

b.)

The Intial base assessment and unsecured assessment rate for the camel according its CAMEL rate for the year is given below:

c.) on the basis of assessment ratio is calculated as dollar value of deposit insurance is calculalted as total assets/ reserve ratio

=500/1.18 /100=4$423 billion.