UCE OCC (Economic Finance) EXAM
STUDY GUIDE LATEST UPDATED.
Capital Stock Is:
= Common stock (outstanding & unimpaired) + Perpetual preferred stock
Perpetual Preferred stock =
1) No State Maturity
2) Cannot be redeemed at holder's option
Capital Definitions: 12 USC 51c
Common Stock = Bank Stock; other than Preferred
Capital = Outstanding unimpaired Common & Preferred
Capital Stock = Common & Preferred Stock Outstanding Unimpaired
Common Stock is Issued in Shares of?
$100 or less 12 USC 52
Capital is
Surplus is
Capital = Common Stock + perpetual preferred stock - outstanding &
unimpaired
Surplus = Capital Surplus
Undivided Profits
YTD Earnings
Minority interest
ALLL
Other reserves
,Purchases mortgage - service rights
20% (C&S) Mandatory Convertible Debt
50% (C&S) Limited life preferred stock sub. note debt equity
Less: Intangibles & dividends YTD if not excluded
Capital Plan
Capital Plan (not same as a directive)
Should Be:
Realistic
Achievable
Consistent w/ strategic plan
Reviewed annually Should Consider:
Growth Assumptions
Profitability
Dividends
Debt Service Requirement
Methods & Cost of Raising Capital
Individual Minimum Capital Ratios
(IMCR)
- Not solely determined by rigid mathematics or objective criteria. Rather
through subjective judgment of the OCC experience
Process
1) OCC will send a letter with the proposed minimum ratios and dates to be
reached
2) Bank may respond in writing within 30 days or receiving notice
3) Then OCC will issue an opinion
*If the generic 12 CFR 3 minimum or IMCR minimum are not maintained, OCC
may issue a capital directive
Capital Plan
Individual Minimum Capital Ratio
,Capital Directive
Capital Article
Plan = Informal / MRA written plan to keep capital ratios at a level
commensurate to the banks risk
IMCR = Informal enforcement action to have a bank maintain higher ratio
minimum than in 12 CFR 3
Directive = Rarely used. Only used to enforce minimum ratios under 12 CFR 3
or an IMCR
Capital Directive
Capital Directive:
Issued when bank does not maintain minimum capital ratios or OCC specified
higher ratios
It Can:
1) Order bank to achieve certain ratios by a specific date
2) Submit and/or adhere to a capital plan
3) Take other actions to adhere to ratios (sell asses, raise capital, etc.)
12 CFR 3 Capital Floors
Total Risk Based Capital Ratio 8%
Leverage Ratio 4%
3% if 1 rated with good earnings
- If fall below, a bank must submit a plan to achieve minimum capital ratios
within 60 days
- OCC may require a bank to maintain (IMCR) higher minimums
- 3% if 1 rated
12 CFR 3 Does:
, 1) Defines capital
2) Sets minimum ratios
3) Outlines procedures for setting high minimums and issuing capital directives
A Holding Company Performance Guarantee (For PCA) is Limited to the
Lesser of ?
1) 5% of TA (at time of notification)
2) Amount necessary to restore the bank to adequately capitalized
Expires after OCC notifies that the bank has been adequately capitalized for
4 consecutive quarter
Can PCA Categories be Advertised or used for Marketing?
No
But, can be disclosed in or to: *
• Connection with security offerings (annual reports/ prospectus)
• Inquiring investors customers or other 3rd parties
Must include a description of PCA "...regulatory category and no indicative of
banks overall or future financial condition."
12 CFR 3
If a bank falls below minimum capital level, what must it do?
(8% & 4%)
Develop a plan to improve within 60 days
PCA Directive
• Bank can respond w/n?
• Enforcement Options
1) 14 days
2) US District Court
Judicial / Administrative Proceeding
CMPs
STUDY GUIDE LATEST UPDATED.
Capital Stock Is:
= Common stock (outstanding & unimpaired) + Perpetual preferred stock
Perpetual Preferred stock =
1) No State Maturity
2) Cannot be redeemed at holder's option
Capital Definitions: 12 USC 51c
Common Stock = Bank Stock; other than Preferred
Capital = Outstanding unimpaired Common & Preferred
Capital Stock = Common & Preferred Stock Outstanding Unimpaired
Common Stock is Issued in Shares of?
$100 or less 12 USC 52
Capital is
Surplus is
Capital = Common Stock + perpetual preferred stock - outstanding &
unimpaired
Surplus = Capital Surplus
Undivided Profits
YTD Earnings
Minority interest
ALLL
Other reserves
,Purchases mortgage - service rights
20% (C&S) Mandatory Convertible Debt
50% (C&S) Limited life preferred stock sub. note debt equity
Less: Intangibles & dividends YTD if not excluded
Capital Plan
Capital Plan (not same as a directive)
Should Be:
Realistic
Achievable
Consistent w/ strategic plan
Reviewed annually Should Consider:
Growth Assumptions
Profitability
Dividends
Debt Service Requirement
Methods & Cost of Raising Capital
Individual Minimum Capital Ratios
(IMCR)
- Not solely determined by rigid mathematics or objective criteria. Rather
through subjective judgment of the OCC experience
Process
1) OCC will send a letter with the proposed minimum ratios and dates to be
reached
2) Bank may respond in writing within 30 days or receiving notice
3) Then OCC will issue an opinion
*If the generic 12 CFR 3 minimum or IMCR minimum are not maintained, OCC
may issue a capital directive
Capital Plan
Individual Minimum Capital Ratio
,Capital Directive
Capital Article
Plan = Informal / MRA written plan to keep capital ratios at a level
commensurate to the banks risk
IMCR = Informal enforcement action to have a bank maintain higher ratio
minimum than in 12 CFR 3
Directive = Rarely used. Only used to enforce minimum ratios under 12 CFR 3
or an IMCR
Capital Directive
Capital Directive:
Issued when bank does not maintain minimum capital ratios or OCC specified
higher ratios
It Can:
1) Order bank to achieve certain ratios by a specific date
2) Submit and/or adhere to a capital plan
3) Take other actions to adhere to ratios (sell asses, raise capital, etc.)
12 CFR 3 Capital Floors
Total Risk Based Capital Ratio 8%
Leverage Ratio 4%
3% if 1 rated with good earnings
- If fall below, a bank must submit a plan to achieve minimum capital ratios
within 60 days
- OCC may require a bank to maintain (IMCR) higher minimums
- 3% if 1 rated
12 CFR 3 Does:
, 1) Defines capital
2) Sets minimum ratios
3) Outlines procedures for setting high minimums and issuing capital directives
A Holding Company Performance Guarantee (For PCA) is Limited to the
Lesser of ?
1) 5% of TA (at time of notification)
2) Amount necessary to restore the bank to adequately capitalized
Expires after OCC notifies that the bank has been adequately capitalized for
4 consecutive quarter
Can PCA Categories be Advertised or used for Marketing?
No
But, can be disclosed in or to: *
• Connection with security offerings (annual reports/ prospectus)
• Inquiring investors customers or other 3rd parties
Must include a description of PCA "...regulatory category and no indicative of
banks overall or future financial condition."
12 CFR 3
If a bank falls below minimum capital level, what must it do?
(8% & 4%)
Develop a plan to improve within 60 days
PCA Directive
• Bank can respond w/n?
• Enforcement Options
1) 14 days
2) US District Court
Judicial / Administrative Proceeding
CMPs
