Article Abstract:
Rabobank Nederland is one of the four dominant banks in the Netherlands, with assets of about $38 billion, and is made up of 1,000 cooperatively organized local banks. As a result, the bank is heavily involved in the small business credit market. A predictive model for garage firms is described which uses the same methodology applied in prior studies of large and small business failures. The model is derived from four financial ratios and a decision rule represented graphically, showing the financial health of the organization. In analyzing the data from the study, it was found that liquidity ratios are relatively unimportant when predicting business failures. The more useful ratios are profitability, solvability and, to a lesser extent, activity ratios. When attempting to implement the model at Rabobank, the credit departments were suspicious of the technique.
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Article Abstract:
Methods of determining the interest-rate risk undertaken by banks are examined, both in the case of very flexible interest rates and perfect competition, and when interest rates are not responsive to market rate changes or when competition is imperfect. Existing literature on bank solvency and market value suggest that besides the current value of liabilities and assets, the value of the bank's charter or goodwill must also be considered. Measuring interest rate risk must take into account current and future interest margins and their interest-rate sensitivity. The value of the bank charter varies from case to case, but it is certainly a factor in cases of interest-rate flexibility, also known as 'stickiness', and imperfect competition.
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Article Abstract:
The growth in the issuance by banks of standby letters of credit (SLCs) well beyond a reasonable level, in comparison to bank assets and liabilities, has led to industry speculation that banks are overextending themselves. Bank examiners and capital markets have each reacted differently to this trend, which is examined. It was found that the only banks which adjust their capital in accordance with the SLCs they issue are banks with assets less than $100 million. So far, no banks have been penalized by the capital markets for issuing SLCs.
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