A financial institution has four divisions, with each division focussing on its own specialization: Insurance operations, Pension fund operations, Mutual fund operations, and Commercial bank operations. This financial institution is operated in a country that is concerned about inflation and has set a target rate for the year. The central bank is expected to embark on a series of interest rate increases. As a financial analyst, you are asked to assess various strategies the financial institution is considering and explain how they could affect its regulatory review. Regulatory reviews include an assessment of capital, asset, quality, management, earnings, liquidity, and sensitivity to financial market conditions. Many types of strategies can result in more favourable regulatory reviews based on some criteria, but less favourable reviews based on other criteria. The financial institution is planning to issue more stocks, retain more of its earnings, increase its holdings of Treasury securities, and reduce its business loans in commercial bank operations. It has historically been rated favourably by regulators, but the financial institution believes that these strategies will result in an even more favorable regulatory assessment.

1. Which regulatory criteria will be affected by the financial institutions strategies? How?