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Bank ABCs simplified balance sheet position (in£ million) is illustrated below: ASSETS LIABILITIES Cash 50 800 Retail deposits Wholesale deposits Subordinated debt Loan Loss Reserve Equity Liquid Assets 150 550 Securities 200 90 Mortgages 600 10 Commercial 500 50 Loans TOTAL 1500 TOTAL 1500 The bank interest income was £750 and interest expenses £650. The non- interest income was £620 and non-interest expenses £600 The bank expects 10 per cent of commercial loans and 5 percent of mortgages to become non-performing and provisions accordingly a) US regulators use the CAMELS system to analyse banks risk profile. What does CAMELS stand for? What financial ratios might best capture each factor? (15 marks) b) Calculate the CAMELS ratios (at least one ratio per category) for the above bank and discuss the banks risk profile (20 marks) c) Discuss the limitations of financial ratio analysis based-models to monitor banks overall safety and soundness (15 marks)

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