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  • Table of Contents4000 Financial Analysis

    Sections Subsections Title

    4000.0 Financial FactorsIntroduction

    4010.0 Parent OnlyDebt Servicing CapacityCash Flow

    4010.0.1 Introduction and Scope of the Analysis4010.0.2 Cash Flow Statement4010.0.3 Supervisory Determination as to Adequacy of Parent

    Company Cash Flow4010.0.4 Specific Guidelines for Debt Servicing Capacity4010.0.5 Sources of Funds to Make Up Shortfalls4010.0.6 Reporting the Results4010.0.7 Inspection Objectives4010.0.8 Inspection Procedures

    4010.1 Leverage

    4010.1.1 Acquisition Debt4010.1.2 Inspection Considerations

    4010.2 Liquidity

    4010.2.1 Introduction4010.2.2 Supervisory Approach to Analyzing Parent Company

    Liquidity4010.2.3 Statement of Parent Company Liquidity Position4010.2.4 Analysis of Underlying Sources to Fund Debt and to

    Meet Other Obligations4010.2.4.1 Interest Bearing Deposits with Subsidiary Banks4010.2.5 Advances to Subsidiaries4010.2.6 Liquidity and Liabilities of the Parent4010.2.7 Analyzing Funding Mismatches4010.2.8 Reporting the Results of the Analysis4010.2.9 Inspection Objectives4010.2.10 Inspection Procedures

    4020.0 Banks

    4020.1 CapitalBanks

    4020.2 Asset QualityBanks

    4020.3 EarningsBanks

    4020.4 LiquidityBanks

    4020.4.1 Sound Liquidity-Risk Management4020.4.2 Liquidity-Risk Management Using the Federal Reserves

    Primary Credit Program4020.4.3 Analysis of Liquidity

    4020.5 Summary AnalysisBanks

    BHC Supervision Manual January 2007Page 1

  • Sections Subsections Title



    4020.9 Supervision Standards for De Novo State MemberBanks of Bank Holding Companies

    4020.9.1 Definition and Scope of the De Novo BankSupervision Policy

    4020.9.2 Capital Standards for BHCs Subsidiary Banks4020.9.3 Cash Flows to a BHC Parent

    4030.0 Nonbanks

    4030.0.1 Introduction4030.0.2 Analysis of Financial Condition and Risk Assessment

    4030.1 ClassificationsNonbanks: Credit Extending

    4030.2 EarningsNonbanks: Credit Extending

    4030.3 LeverageNonbanks: Credit Extending

    4030.4 ReservesNonbanks: Credit Extending

    4040.0 Nonbanks: Noncredit Extending

    4040.0.1 Earnings4040.0.2 Risk Exposure

    4050.0 Nonbanks: Noncredit Extending (Service Charters)

    4060.0 ConsolidatedEarnings

    4060.1 ConsolidatedAsset Quality

    4060.2 Reserved

    4060.3 Consolidated CapitalExaminers Guidelinesfor Assessing the Capital Adequacy of BHCs

    4060.3.1 Introduction to Examiner Guidelines for Risk-BasedCapital

    4060.3.2 Overview of Risk-Based Capital Guidelines4060.3.2.1 Definition of Capital4060. Tier 1 Capital4060. Tier 2 Capital4060. Deductions from Tier 1 and Tier 2 Capital4060.3.2.2 Procedures for Risk-Weighting of On- and

    Off-Balance-Sheet Items4060. Risk Categories4060. Application of the Risk Weights4060.3.3 Implementation

    Table of Contents 4000 Financial Analysis

    BHC Supervision Manual January 2007Page 2

  • Sections Subsections Title

    4060.3.4 Documentation4060.3.5 Supervisory Considerations for Calculating

    and Evaluating Risk-Based Capital4060.3.5.1 Investments in and Advances to Unconsolidated

    Banking and Finance Subsidiaries and OtherSubsidiaries

    4060. Review and Monitoring of Intangible Assets4060. Reciprocal Holdings of Banking Organizations

    Capital Instruments4060. Limit on Deferred Tax Assets4060. Nonfinancial Equity Investments4060. Revaluation Reserves4060.3.5.2 Certain Balance-Sheet-Activity Considerations4060. Investment in Shares of a Mutual Fund4060. Loans Secured by First Liens on One- to Four-Family

    Residential Properties or Multifamily ResidentialProperties

    4060.3.5.3 Certain Off-Balance-Sheet-Activity Considerations4060. Assets Sold with Recourse4060. Definitions4060. Recourse Obligations, Direct-Credit Substitutes, Residual

    Interests, and Asset- and Mortgage-Backed Securities4060. Ratings-Based ApproachExternally Rated Positions4060. Residual Interests4060. Other Unrated Positions4060. Limitations on Risk-Based Capital Requirements4060. Risk-Based Capital Treatment of Certain Other Types

    of Off-Balance-Sheet Items and Transactions4060. Small-Business Loans and Leases on Personal

    Property Transferred with Recourse (FAS 140 Sales)4060. Securities Lent4060. Commitments4060. Asset-Backed Commercial Paper Program Assets4060. Derivative Contracts (Interest-Rate, Exchange-Rate,

    and Commodity- (Including Precious Metals) andEquity-Linked Contracts)

    4060. Treatment of Commodity and Equity Contracts4060. Netting of Swaps and Similar Contracts4060. Financial Standby Letters of Credit and Performance

    Standby Letters of Credit4060. Credit Derivatives4060. Credit Derivatives Used to Synthetically

    Replicate Collateralized Loan Obligations4060. Reservation of Authority4060. Board Exceptions (Reservation of Authority) for

    Securities Lending4060. Board Exception (Reservation of Authority) for Regulation

    T Margin DebitsRegulation T Margin Loans4060.3.5.4 Considerations in the Overall Assessment of Capital

    Adequacy4060. Unrealized Asset Values4060. Ineligible Collateral and Guarantees

    Table of Contents 4000 Financial Analysis

    BHC Supervision Manual January 2016Page 3

  • Sections Subsections Title

    4060. Overall Asset Quality4060. Interest-Only Strips and Principal-Only Strips4060. Interest-Rate Risk4060. Claims on, and Claims Guaranteed by, OECD Central

    Governments4060. Accounting for Defined Benefit Pension and Other

    Postretirement Plans4060.3.6 Difference in Application of the Risk-Based Capital

    Guidelines to Banking Organizations4060.3.6.1 Difference in Treatment of Perpetual Preferred Stock4060.3.6.2 Perpetual Preferred Stock4060.3.7 Cash Redemption of Perpetual Preferred Stock4060.3.7.1 Federal Reserves Supervisory Position on

    Cash Redemption of Tier 1 Preferred Stock4060.3.8 Common Stock Repurchases and Dividend Increases

    on Common Stock4060.3.9 Qualifying Mandatory Convertible Debt Securities

    and Perpetual Debt4060.3.9.1 Trust Preferred Securities Mandatorily Convertible into

    Noncumulative Perpetual Preferred Securities4060.3.10 Inspection Objectives4060.3.11 Inspection Procedures4060.3.11.1 Verification of the Risk-Based Capital Ratio4060.3.11.2 Verification of the Tier 1 Leverage Ratio4060.3.11.3 Overall Assessment of Capital Adequacy4060.3.12 Laws, Regulations, Interpretations, and Orders

    4060.4 Consolidated CapitalTier One Leverage Measure

    4060.4.1 Capital Adequacy Guidelines for Bank HoldingCompanies: Tier 1 Leverage Measure

    4060.4.1.1 Overview of the Tier 1 Leverage Measure for BankHolding Companies

    4060.4.1.2 Tier 1 Leverage Ratio for BHCs

    4060.5 Capital AdequacyAdvanced Approaches

    4060.5.1 Advanced Measurement Approaches InteragencyGuidance for Operational Risk

    4060.5.2 Establishment of a Risk-Based Capital Floor



    4060.8 Consolidated Risk-Based CapitalDirect-CreditSubstitutes Extended to ABCP Programs

    4060.8.1 Assessment of Internal Rating Systems4060.8.2 Inspection Objectives4060.8.2.1 Internal Risk-Rating System4060.8.2.2 Internal Risk-Rating System for ABCP Securitization

    Exposures4060.8.2.3 Internally Rated Exposures

    Table of Contents 4000 Financial Analysis

    BHC Supervision Manual January 2016Page 4

  • Sections Subsections Title

    4060.8.2.4 Monitoring of ABCP Programs by Rating Agencies4060.8.2.5 Underwriting Standards and Management Oversight4060.8.2.6 Internal Rating Consistency with Ratings Issued by the

    Rating Agencies4060.8.2.7 First-Loss Position for Program-Wide Credit Enhancement4060.8.2.8 Concentrations of Non-Investment-Grade Seller/Servicers4060.8.2.9 Underlying Assets of the ABCP Program Structured to

    Investment-Grade Risk4060.8.3 Decision Tree4060.8.4 Inspection Procedures4060.8.4.1 Organizing the Inspection Process4060.8.4.2 Step OneAcceptable Internal Risk-Rating Systems4060.8.4.3 Step TwoUse of an Established Internal Risk-Rating

    System Tailored to ABCP Securitization Exposures4060.8.4.4 Step ThreeRelevant Internally Rated Exposures4060.8.4.5 Step FourABCP Program Monitored by Rating Agencies4060.8.4.6 Step FiveSufficient Underwriting Standards and

    Management Oversight4060.8.4.7 Step SixConsistency of Internal Ratings of ABCP

    Programs Exposures with Ratings Issued by theRating Agencies

    4060.8.4.8 Determine Adequacy of Internal Ratings Systems4060.8.4.9 Step SevenDetermination of Whether the Program-Wide

    Credit Enhancements Are in the First-Loss Position4060.8.4.10 Step EightRisk Levels Posed by Concentrations of

    Non-Investment Grade Seller/Servicers4060.8.4.11 Step NineThe Portion of Underlying Assets of the ABCP

    Program Structured to Investment-Grade Risk4060.8.5 Internal Control Questionnaire4060.8.6 Appendix AOverview of ABCP Programs4060.8.7 Appendix BCredit-Approval Memorandum

    4060.9 Consolidated Capital Planning ProcessesPayment ofDividends, Stock Redemptions, and Stock Repurchasesat Bank Holding Companies

    4060.9.1 Review of Capital Adequacy Management4060.9.1.1 Dividends in Cash or Other Value4060.9.1.2 Stock Redemptions and Repurchases4060.9.2 Inspection Objectives4060.9.3 Inspection Procedures4060.9.4 Laws, Regulations, Interpretations, Orders

    4061.0 Consolidated Capital (Capital Planning)

    4061.0.1 Capital Positions of Bank Holding Companies4061.0.2 Board of Director Responsibilities4061.0.2.1 Annual Capital