Tampa National Bank Analysis

Executive Summary

The Funds Management Committee (FMC) of Tampa National Bank held a monthly meeting to outlook for the current economic and interest rate conditions, review of bank’s performance and positions and discuss possible actions to be taken.

Current profit performance is stable, however, yield curve and interest rate risk will be reviewed and the bank has a negative dollar gap. Interest rate is low at the moment but is expected to rise in the near future due to the upcoming election. The rising in interest rate will hurt the bank’s net interest revenue. The bank could manage the interest rate risk exposure by increasing the asset portion. They could invest the excess retained earnings in short term securities - mortgage backed securities such as Collateral Mortgage Obligation at the same time give out more loans.

The Tampa bank’s extremely high liquidity position remains it to be viable to solve its short-term obligation such as withdrawal by depositors and loan-taking by borrowers and flexibility for the bank or an investor in a low – risk liquidity position.

The Tampa bank capital could also sustain financial cushion to absorb either unexpected losses occurring between all its assets and liabilities or in the event of the bank’s winding up and liquidating and the value of bank’s asset must exceed its liability in order to remain solvent position.

However, with comparing to peers the capital ratio to risk –weighted assets and fundamental Tier 1 capital ratio of the Tampa bank are remaining low that might indicate uncertainty for absorbing losses and ceasing bank’s operation.

The inefficiency of Tampa’s liquidity and capital operations might decrease the profitability in future dates having the impact of low net interest income resulting from mismatching repricing gap of investment portfolios and loan portfolios and uncertainty interest rate movement of economic changes due to future political outcomes (presidential elections) and federal reserve’s policy.

In facts , interest rate facing for all the bank is very common case so called blood pressure of the bank like increasing or decreasing without obvious outward signs which results in failure of earning and net worth margin.

Back ground in the late 80’s – Savings and Loan Crisis

With the development of financial industry in the late 70s and 80s, there was a great impact to the traditional banking industry technological innovations and innovations in financial products. As a result, many banks shifted funds to commercial real estate lending – an area involving greater risk. Some large banks also shifted funds to less-developed countries and leveraged buyouts, and increased their off-balance-sheet activities. When interest rates and inflation went up dramatically, depositors withdrew their funds and invested to other places