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MGMT fin Inst. Ch 12
Terms in this set (27)
Banks with greater capital can do all of the following except:
a. borrow at lower rates.
b. make larger loans.
c. expand faster through acquisitions.
d. expand faster through internal growth
e. Banks with greater capital can do all of the above
Prior to the Basel Agreement, capital requirements were established without regard to:
the size of the bank's assets.
Which of the following is not part of Tier 1 or core capital?
cumulative perpetual preferred stock.
Supplementary or Tier 2 capital does not include:
noncumulative perpetual preferred stock
Which of the following was not part of the Basel Agreement?
The ownership of equity by banks was prohibited.
Under the current capital requirements, assets in Category 2, such as repurchase agreements, have an effective total capital-to-total-assets ratio of:
Under the current capital requirements, assets in Category 3, such as 1-4 family real estate loans, have an effective total capital-to-total-assets ratio of:
Under current capital requirements, Tier 1 Capital takes of all of the following into account except:
allowance for loan and lease losses.
Tier 2 capital consists of all of the following except:
equity in subsidiaries.
Which of the following is included in regulatory capital but not accounting capital? ¬
When the final Basel III rules are implemented in 2019, the minimum Tier 1 capital/risk-weighted assets percentage will be:
To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:
6%, 10%, and 5%, respectively.
To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:
4%, 8%, and 3%, respectively.
A bank that does not meet the minimum levels for Tier 1 capital, total capital, and leverage capital ratios is classified as:
How does bank capital reduce bank risk?
It provides a cushion for firms to absorb losses.
Why do regulators prefer higher capital requirements?
It better protects the deposit insurance fund.
Why do banks generally prefer lower capital requirements?
To increase a bank's return on equity.
How do capital requirements constrain bank growth?
By limiting the amount of new assets that a bank can acquire through debt financing.
Which of the following is not a weakness of risk-based capital standards?
They ignore credit risk.
Approximately what percentage of commercial banks were currently considered well capitalized at the end of 2007?
For banks that have insufficient capital, which of the following is not a typical operating strategy to achieve capital adequacy?
Increase the dollar amount of commercial loans outstanding
Which of the following is true regarding subordinated debt?
Interest payments on subordinated debt are tax-deductible.
Which of the following is not true regarding common stock?
Dividends are considered a fixed charge that must be paid.
Which of the following is a hybrid form of equity that effectively pays dividends that are tax deductible and is considered Tier 1 capital?
Trust preferred stock
For a bank with deficient capital ratios, which of the following actions could be taken to increase the capital ratios, holding everything else the same?
Cut the bank's dividend payment.
Which of the following is not a Category 1 (Risk Rate = 0%) balance sheet asset?
Cash items in the process of collection.
Which of the following is false regarding bank preferred stock?
All preferred stock investors pay taxes on only 20% of dividends.
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