Each question must be answered in your own words to receive any credit. Please work by yourself and submit the exam by 4 pm on Thursday, June 20th.

Good Luck!

1. The Treasury Department report for modernizing the financial system made several recommendations for safer and more competitive banks. FDICIA of 1991 was born from the recommendations. Give a brief description of FDICIA and discuss the meaning of defacto insure? 20 pts.

2. Calculate the risk-adjusted asset base for a bank with:
a. Cash of $20 million, 0%
b. Gen. Obligation municipal security of $100 million, 20%
c. Singe family home mortgages of $500 million, 50%
d. Commercial loans of $300 million, 100%.
4a. If the bank has no off-balance sheet activity what is the bank=s minimum required level of Tier1 and Tier 2 capital? 10 pts.
4b. If the bank has Tier 1 capital of $25 million and Tier 2 capital of $15 million does the bank comply with its capital requirement. 10 pts.
4c. Also, explain how the addition of off-balance sheet activities might impact the capital requirement of the bank. 5 pts.

3. What is meant by prompt corrective action and how is it implemented in the current
regulatory environment. What role does capital play in prompt corrective action?
How do we categorize capital under this approach and how do we know the wire has been
“tripped”. Also want is meant by CAMEL. Please be very specific.

4. What are the three pillars of BASEL 2? Under Basel 2 what external agency monitors the credit risk of large international banks? Give an example of the use of market discipline under Basel 2 and explain the difference between market discipline from the bond and equity markets.

5. Give a brief discussion of the Graham Leach Bliley Act. In your answer discuss the …