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Bank Risk Categories and Capital Allocation Guide

Understand the risk categories at Regional National Bank (RNB) with details on respective risk-based capital in millions. Learn about leverage capital ratio, minimum capital requirements, and provisions for prompt corrective action. Explore the balance between capital adequacy and bank liquidity. Regulators' preference for more capital versus bankers' preference for less, and the rationale for higher capital for riskier banks.

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Bank Risk Categories and Capital Allocation Guide

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  1. General Description Of Assets In Each Of The Four Risk Categories

  2. Regional National Bank (RNB), Risk-based Capital (Millions Of Dollars): Category 1 & 2

  3. Regional National Bank (RNB), Risk-based Capital (Millions Of Dollars): Category 3 & 4

  4. Regional National Bank (RNB), Risk-based Capital (Millions Of Dollars): Off Balance Sheet

  5. Regional National Bank (RNB), Off-balance Sheet Conversion Worksheet

  6. Leverage Capital Ratio • Leverage Capital Ratio • Equals: • Tier 1 capital divided by total assets net of goodwill and disallowed intangible assets and deferred tax assets • Regulators are concerned that a bank could acquire practically all low-risk assets such that risk-based capital requirements would be virtually zero • To prevent this, regulators have also imposed a 3 percent leverage capital ratio

  7. Minimum Capital Requirements across Capital Categories

  8. Provisions for Prompt Corrective Action

  9. How Much Capital is Adequate? • Regulators prefer more capital • Reduces the likelihood of bank failures and increases bank liquidity • Bankers prefer less capital • Lower capital increases ROE, all other things the same • Riskier banks should hold more capital while low-risk banks should be allowed to increase financial leverage

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