Question

Two depository institutions have composite CAMELS ratings of 1 or 2 and are ‘well capitalized.’ Thus, each institution falls into the FDIC Risk Category I deposit insurance assessment scheme. Further, the institutions have the following financial ratios and CAMELS ratings: Use Table. Institution 1 Institution 2 Tier I leverage ratio (%) 8.80 7.93 Loans past due 30–89 days/gross assets (%) 0.63 0.74 Nonperforming assets/gross assets (%) 0.53 0.68 Net loan charge-offs/gross assets (%) 0.46 0.50 Net income before taxes/risk-weighted assets (%) 2.33 2.04 Adjusted brokered deposits ratio (%) 0.00 15.74 CAMELS components: C 2 2 A 2 3 M 1 2 E 2 2 L 1 3 S 2 1 Pricing Multiplier Uniform Amount 4.861 Tier I leverage ratio (%) (0.056) Loans past due 30-89 days/gross assets (%) 0.575 Nonperforming assets/gross assets (%) 1.074 Net loan charge-offs/gross assets (%) 1.210 Net income before taxes/risk-weighted assets (%) (0.764) Adjusted brokered deposits ratio (%) 0.065 Weighted average CAMELS component ratings 1.095 Calculate the initial deposit insurance assessment rate for each institution. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.161)) Institution 1 Institution 2 Initial assessment rate

Answer 1

To find the initial deposit insurance assessment rate for each institutions, we first need to calculate the weighted average CAMELS component:

Weighted Average CAMELS Components = Sum of weighted individual CAMEL components, calculated as below:

CAMELS components:	Weights (A)	Intitution 1 (B)	Total (A*B)		Intitution 2 ( C)	Total (A*C)
C	0.25	2	0.50		2	0.50
A	0.20	2	0.40		3	0.60
M	0.25	1	0.25		2	0.50
E	0.10	2	0.20		2	0.20
L	0.10	1	0.10		3	0.30
S	0.10	2	0.20		1	0.10
Weighted average CAMELS component			1.65			2.20

Now we need to find the initial deposit insurance assessment rate for each institution:

Risk Measures	Pricing Multiplier (A)	Risk measure value (B)	Contibution to assessement rate (A*B)		Risk measure value ( C)	Contibution to assessement rate (A*C)
Uniform amount	4.861		4.861			4.861
Tier 1 leverage ratio	0.056	8.8	0.4928		7.93	0.44408
loans past due 30-89 days / gross assets	0.575	0.63	0.36225		0.74	0.4255
NPA / Gross Assets	1.074	0.53	0.56922		0.68	0.73032
Net loan charge-offs/ gross assets	1.21	0.46	0.5566		0.5	0.605
net income before taxes / risk weighted assets	0.764	2.33	1.78012		2.04	1.55856
Adjusted brokered deposits ratio	0.065	0.00	0.00		15.74	1.0231
Weighter average CAMELS components	1.095	1.65	1.80675		2.20	2.409
TOTAL			10.42874			12.05656

Hence, the initial deposit insurance assessment rate for Institute 1 is 10.43 (rounded to 2 decimal places) and

The initial deposit insurance assessment rate for Institute 1 is 12.06 (rounded to 2 decimal places) and