1. One of the central goals of Basel III is to strengthen bank liquidity. Are AFS or HTM investments more liquid (easily turned into cash)? Based on Banks investment trends in HTM and AFS securities, has the Federal Reserve Boards decision to include AOCI in the calculation of regulatory capital for larger banks increased the liquidity of larger banks investments and why? In other words, have larger banks shifted their investments to more liquid assets? Do you think extending this requirement to smaller banks would improve or worsen liquidity in the banking sector? Refer to your answer to Question 6 in part I of the case for insight into your answer.

Avg HTM And AFS Date 400K 300K Avg. AFS 200K 100K OK 200K --- 150K Avg. HTM 100K ------ 50K OK 20.. 20. 20. 20. 20. 20. 20. 20. 20. 20.. Avg HTM And AFS LARGE Date 100M 80M 60M Avg. AFS 40M 20M OM 40M 30M Avg. HTM 20M 10M OM 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Avg HTM And AFS SMALL Date 200K 150K Avg. AFS 100K 50K OK 80K 70K 60K 50K Avg. HTM 40K 30K 20K 10K OK 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Avg HTM And AFS Date 400K 300K Avg. AFS 200K 100K OK 200K --- 150K Avg. HTM 100K ------ 50K OK 20.. 20. 20. 20. 20. 20. 20. 20. 20. 20.. Avg HTM And AFS LARGE Date 100M 80M 60M Avg. AFS 40M 20M OM 40M 30M Avg. HTM 20M 10M OM 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Avg HTM And AFS SMALL Date 200K 150K Avg. AFS 100K 50K OK 80K 70K 60K 50K Avg. HTM 40K 30K 20K 10K OK 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018