Exam 3 FIN 330

Unit banks are:
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Unit banks are:
Banks with no branches
The number of banks in the U.S. today is approximately:
5000
If someone wants to start a bank today, they would have to:
obtain a charter either from the federal or state government.
The Federal Deposit Insurance Corporation (FDIC) was created:
in 1933 as a part of the Glass-Steagall Act.
The Glass-Steagall Act of 1933 required commercial banks to sell off their investment banking operations.
True
Bank holding companies (Umbrella) developed:
to get around the limitations on bank branching and restrictions in place for non- banking lines of business.
Which of the following qualifies as a liability to a bank?
demand deposits
Which of the following would be considered an asset on a bank's balance sheet?
a consumer loan
15 largest US banks manage how much of FDIC-insured assets
77%
FDIC
Federal Deposit Insurance Corporation
OCC (Office of the Comptroller of the Currency)Federal agency that serves to charter, regulate and supervise the national banks and the federal branches and agencies of foreign banks, head is appointed by the PresidentNCUA (National Credit Union Administration)Insures credit unions for $250,000 per depositor, per insured credit union, for each account ownership type.Ridley goes for a job interview at Exeter Corporation. When she sits down with the human resources director, we might say that a situation of __________________ exists.asymmetric informationThe loan application process that banks require potential borrowers to go through is an attempt to deal withadverse selectionWhich of the following is a problem of moral hazard?An individual who purchases auto insurance begins to leave his or her keys in the car while running into a store.The liquid bank accounts most often used by accountholders to transfer funds to other parties are known astransaction deposit accounts.The marketable securities that banks hold on their balance sheet include:only bonds.A bank's net worth is synonymous with its:capitalBanks perform a very important function in society called asset transformation.TrueIndustries with largest share in total GDPFinance, Insurance, and real-estateFunction of Financial Intermediaries1.Provide safekeeping 2.Access to payments system 3.Supplying liquidity 4.Providing ways to diversify risk, and 5.Reduce information costs.occurs before a transaction occurs.Adverse selectionarises after the transaction has developed.Moral hazardCFPBConsumer Financial Protection Bureau spawned by Dodd-Frank in 2011. Aggressive pursuit of lenders and other financial firms Conduct rulemaking Supervise/enforce consumer financial laws Handle consumer complaints Promote financial education Research consumer behavior Monitor the financial risks to consumers Define what is "unfair" or "abusive".Bank Balance SheetCash, bonds, loans, deposits, borrowings, capitalA bank's reserves include:The bank's deposits at the Federal ReserveA category of assets for banks is cash items in the process of collection. This is:uncollected funds the bank is due to receive from the clearing of checks.Which specific asset on the bank's balance sheet is often referred to a secondary reserve?U.S. government and agency bonds.A bank's commitment to provide a borrower with loans up to pre-specified limit at an interest rate tied to the market is called:Loan commitmentA bank's loan loss reserves are:an amount the bank sets aside to cover potential losses from defaulted loans.Bank capital represents funds obtained through __________ and through _____________.issuing stock; retaining earningsBank Portfolio ObjectivesSafety or preservation of capital Liquidity Yield Credit risk diversification Help in manage interest rate risk exposure Assist in meeting pledging requirementsBank regulators set minimum capital standards toprotect creditors from decreases in asset valuesThe ability of deposit insurance to prevent a run on a bank is mitigated by the fact that there is a large proportion of deposits in banks that exceed the insurance coverage limit and are therefore uninsured.TrueA bank that does not want to hold a lot of excess reserves (account balances with the Federal Reserve) but wants to manage liquidity risk is likely to:hold a lot in highly liquid securities.All else the same, if a bank's liabilities are more sensitive to interest rate fluctuations than are its assets, then ___________ in interest rates will ____________ bank profits.increase, reduceThe risk of bank losses due to the impact of a natural disaster are known as operational risks.TrueRisks for Banks to ManageCredit Risk Liquidity Risk Capital Risk Operational Risk Interest Rate RiskCredit RiskThe potential variation in income resulting from non (or delayed) paymentLiquidity RiskThe variation in income caused by bank's difficulty in obtaining cash at reasonable cost from sale of assets or borrowings.interest rate riskThe risk to earnings or capital arising from movements in interest rates.Most of a bank's operating income results frominterest on assetsA bank's return on equity (ROE) is calculated by:Dividing the bank's net profit after taxes by the bank's capitalFor most banks, its calculated burden isnegativeA bank's net interest margin is calculated by taking net interest income and:dividing it by the bank's assetsIf a bank increases its provisions for loan losses, its interest income is _______________, and its noninterest income is ________________.not affected; not affectedAcquiring information on a bank's activities in order to determine a bank's risk is difficult for depositors and is another argument for governmentAcquiring information on a bank's activities in order to determine a bank's risk is difficult for depositors and is another argument for governmentA dual banking system is one in which charters can be granted by national or state/provincial authorities.TrueWhich bank regulator has the sole regulatory authority over bank holding companies?The Federal Reserve SystemWhich body is pushing back against OCC efforts to invite Fintechs into the "sandbox" and potentially offer them a charter?State RegulatorsBanks are required to file ________ usually quarterly that list information on the bank's assets and liabilities, income and dividends, and so forth.call reportsWhat matters most during a bank run is:the liquidity of the bank.The CAMELS "S" for sensitivity measures the impact of _______________________on earnings and capitalinterest rate changesNet Interest Margin (NIM)Net interest income divided by earning assetsYieldTotal interest income divided by earning OR total assets.Cost of FundsTotal interest expense divided by total interest bearing liabilities (or all deposits, or all assets)SpreadYield minus cost of fundsNet OverheadBurden / Average AssetsEfficiency (Non-interest Expense)NET Interest Income + Non-interest IncomeCAMELSCapital Adequacy Asset Quality Management Earnings Liquidity Sensitive to RiskPayoff MethodThe FDIC pays off all the bank's depositors, then sells all the bank's assets.purchase-and-assumption method.The FDIC finds a firm willing to take over the failed bank.BSA/AMLBank Secrecy Act/Anti-Money Laundering Safety and Soundness Consumer Protection Reporting, Recordkeeping, Monitoring