Assessment of capital-asset quality and management

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Effect of Bank Strategies on Bank Ratings A bank has asked you to assess various strategies it is considering and explain how they could affect its regulatory review. Regulatory reviews include an assessment of capital, asset quality, management, earnings, liquidity, and sensitivity to financial market conditions. Many types of strategies can result in more favorable regulatory reviews based on some criteria but less favorable reviews based on other criteria. The bank is planning to issue more stock, retain more of its earnings, increase its holdings of Treasury securities, and reduce its business loans. The bank has historically been rated favorably by regulators yet believes that these strategies will result in an even more favorable regulatory assessment.

a. Which regulatory criteria will be affected by the bank's strategies? How?

b. Do you believe that the strategies planned by the bank will satisfy its shareholders? Is it possible for the bank to use strategies that would satisfy both regulators and shareholders? Explain.

c. Do you believe that the strategies planned by the bank will satisfy the bank's managers? Explain.

Reference no: EM131196218

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