CAMELS the "C" is for Capital Ratios Computational Issues for Your Institutions

Duration: 90 Minutes
Most bankers (finance, treasury and accounting personnel, in particular) are well aware of the important minimum capital ratios required for all depository institutions. Any institution whose ratios fall below the required minimums is not tolerated and is subject to scrutiny and action by the primary regulator of that institution.
CAMELS Analysis Ratios
Product ID: 507914
The four basic minimum regulatory capital ratios have become benchmarks for depository institutions. The importance of each ratio cannot be overemphasized.

Depository institutions of all types (commercial banks, savings and loan associations, credit unions) all have very little capital. They operate primarily by using other people's money (OPM). They all rely heavily on depositor's balances rather than capital infusions. The "fuel" that keeps them running, for the most part, is the depositor balances and the continuous growth in those deposits. As a result they have precious little capital. Investors know that. Regulators know that. That is why there is so much emphasis on capital levels and capital ratios, especially the four basic minimum regulatory ratios.

This webinar focuses on the scarcity of capital for banks and bank holding companies (BHCs) by viewing the key ratios for the entire industry. The webinar discusses the four basic regulatory capital ratios and how they are calculated.

The four ratios are the result of Basel III deliberations that occurred after the financial problems of 2007/2008 which started with serious problems in the mortgage banking sector and spread through the entire economic landscape.

The webinar present a brief review of the Basel accords (Basel I, Basel II, and now Basel III) and their purpose. It explores how each institution calculates:
  • Common Equity Tier 1 (CET1) Capital Ratio
  • Tier 1 Capital Ratio
  • Total Capital Ratio
  • Tier 1 Leverage Ratio
The webinar also shows how the supervisory agencies (FDIC, FRB, OCC, and NCUA) monitor financial condition of the financial institutions, in part, by relying on on-site examinations that focus on the Uniform Financial Institutions Rating System (UFIRS), known as the CAMELS rating system. The primary concern of the webinar is the "C" in CAMELS which stands for "capital adequacy." The other parts of the CAMELS rating system (asset quality, management, earnings, liquidity, and risk sensitivity), although very important, are covered in the webinar but to a lesser extent since they are not the major concern of the webinar.

The webinar shows the overview of the CAMELS components, the CAMELS rating scheme and the importance of the composite ratings. It shows how the quarterly Call Report (Schedule RC-R for banks and HC-R for BHCs) is used to calculate the four ratios. New Basel III requirements are emphasized. The computational numerators and risk weighted denominators for the ratios are highlighted and analyzed.

Objectives of the Presentation
  • Understanding the importance of capital
  • Appreciating the scarcity of capital at all banks and BHCs
  • Distinguishing between each of the four minimum capital ratios
  • Comprehending the components of the numerators and the denominators used for the computations
  • Learning what is risk weighted, how risk-weighting is done and why it is important
Why Should you Attend
Attendees will learn the importance of the scarcity of capital in the banking industry. They also will become aware of the intricacies involved in calculating the important minimum capital ratios. Attendees will obtain knowledge about the statistical measures that trigger prompt corrective action (PCA).

Understanding the lines on the Call Report that are important for determining the four ratios is an important part of the webinar.

Areas Covered
  • Industry Statistical Results
  • Calculations for:
    • CET1 Capital Ratio
    • Tier 1 Capital Ratio
    • Total Capital Ratio
    • Tier 1 Leverage Ratio
  • Minimum Regulatory Requirements
  • Meaning of:
    • Well capitalized
    • Adequately capitalized
    • Undercapitalized
    • Significantly undercapitalized
  • Prompt Corrective Action (PCA)
  • The Depository Insurance Fund (DIF)
  • UFIRS
  • CAMELS
  • Overview of CAMELS Components
  • CAMELS rating scheme
  • Composite Ratings
  • Basel I, II and III
  • Risk Weighting "buckets" (0%, 20%, 50%, 100%, etc., etc.)
  • Call Report Schedule RC-R and HCR (lines leading to numerators and denominators)
  • HVCRE – High-Volatility Commercial Real Estate Lending
  • Past-Due Exposures
  • Equity Exposures
  • Mortgage Backed Securities
  • Off-balance sheet items
  • Derivatives
  • Guarantees
  • Collateralized transactions
  • AOCI
  • Credit Ratings
  • Securitization exposures
Who will Benefit
This webinar is an excellent primer for newcomers to regulatory capital and a good refresher for experienced personnel.

Specific targeted audiences for the webinar are:
  • Call Report preparers
  • Call Report reviewers
  • Controllers
  • Treasures
  • Internal accountants
  • Internal auditors
  • External auditors
  • Regulators
  • Investors
  • Bank accountants
  • Call Report newcomers
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Instructor Profile:
Paul J. Sanchez, CPA, CBA, CFSA, CGMA conducts a small CPA practice in Port Washington, New York. He is also the owner of Professional Service Associates (PSA), a consulting and professional training and development business servicing corporate clients (auditors, controllers, etc.), CPA firms, professional associations and others. He was an assistant professor at Long Island University - C.W. Post Campus as well as an adjunct lecturer at City University of New York. Prior to starting PSA, he was the Vice President-Professional Development for the Audit Division of a regional bank and Director of Professional Practices and Vice President of a money-center bank, where he directed the professional practice development and training for internal auditors. He also was on the technical staff of the Auditing Standards and Examinations Divisions of the AICPA. He practiced public accounting in the New York office of Deloitte where he also was a firm recruiter and in-house professional development instructor. He was an owner and auditing and accounting seminar leader for the Person/Wolinsky CPA Review Courses, a company that prepared candidates to pass the Uniform CPA Examination. He is a frequent lecturer and seminar leader for accounting, auditing, banking, risk assessment and other professional presentations. He is the author of the textbook, "Accounting Basics for Community Financial Institutions" (Financial Managers Society, 2nd edition, Chicago, 2009) and the "Ideas an Analysis Letter: The Sanchez Take" (see www.sanchez-psa.com). As a contributing author, his chapter on 'An Auditor's Approach to Risk-Based Auditing: What to Audit and When,' is included in the textbook, "Effective Auditing for Corporates: Key Developments in Practice and Procedures," (Bloomsbury Information, Ltd, London, 2012).
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