Econ Chapter 10 (Bank management)
Bank assets
-Cash items -Securities -Loans -Other (buildings, etc.)
Bank liabilities
-Checkable deposits -Non-transaction deposits -Borrowings
Equity multiplier
= bank assets / bank capital
Return on equity (ROE)
= net profit after taxes / bank capital
Return on assets (ROA)
= not profit after taxes / bank assets
Of the following, which would be the last choice for a bank facing a reserve deficiency? A) call in loans B) Borrow from the Fed C) sell securities D) borrow from other banks
A
Suppose a bank called Wise Guys initially starts with $20 million in capital. A total of $140 million in checkable deposits is received. The bank purchases securities worth of $55 million and the bank then makes a $65 million commercial loans and lends another $20 million in mortgage loans. If required reserve ratio is 10%, the bank keeps rest as excess reserves, and has no other assets or liabilities, how much total reserves does the bank have? A) $20 mil B) $21 mil C) $50 mil D) $19.2 mil
A
When $1 million is deposited at a bank, the required reserves ratio is 20 percent, and the bank chooses not to make any loans but decides to hold excess reserves instead, then, in the bank's final balance sheet: A) the assets at the bank increase by $1 million B) the liabilities of the bank decrease by $1 million C) reserves increase by $200,000 D) liabilities increase by $200,000
A
When $10 million is deposited at a bank, the required reserve ration is 1-%, and the bank chooses not to make any loans but decides to hold excess reserves instead, then, in the bank's final balance sheet A) the assets at the bank increase by $10 million B) the liabilities of the bank decrease by $10 million C) total reserves increase by $1 million D) liabilities increase by $1 million
A
When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then A) the liabilities of Citibank increase $10 B) the assets of Citibank fall by $10 C) the reserves of the first national bank increase by $10 D) the liabilities of the first national bank increase by $10
A
What explains a shift in bank assets from business loans to real estate loans? A) securitization made real estate loans easier B) commercial paper market reduced demand for loans from the corporations C) changing legal structure of large banks D) general downward trend in interest rates
A, B
Bank capital
Assets - Liabilities
Bank loans from the Federal Reserve are called __________ and represent a _________ A) discount loans; use B) discount loans; source C) fed funds; use D) fed funds; source
B
Capital is the cushion banks have against: A) moral hazard B) sudden drops in the value of their assets C) liquidity risk D) an unexpected decrease in liabilities
B
Consider a banks balance sheet which of the following statements is false: A) Total bank capital = total bank assets - total bank liabilities B) total bank assets + total bank liabilities = total bank capital C) total bank liabilities = total bank assets - total bank capital D) total bank assets = total bank liabilities + total bank capital
B
Considering the balance sheet for all commercial banks in the US, the largest category of assets is: A) cash items B) US government securities C) required reserves D) loans
B
Federal funds market is A) interbank loan market that are secured B) interbank loan market that are unsecured C) maintained and regulated by the federal reserve D) located in NYC
B
For a given return on assets, the lower is bank capital A) the lower is the return for the owners of the bank B) the higher is the return for the owners of the bank C) the lower is the credit risk for the owners of the bank D) the lower the possibility of bank failure
B
If a bank has $100,000 of checkable deposits, a required reserve ration of 20%, and its holds $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is: A) $30,000 B) $25,000 C) $20,000 D) $10,000
B
If a bank has $160,000 of checkable deposits, a required reserve ratio of 10%, and it holds $25,000 in reserves, then how much maximum deposit outflow it can sustain without running into reserve deficiency? A) $9,000 B) $10,000 C) $12,000 D) $20,000
B
If a bank has $200 million in deposits, the required reserve rate is 10 percent and the bank has $23 million in reserves: A) the bank is short of required reserves B) the bank has excess reserves of $3 million C) the bank has excess reserves of $13 million D) the bank has excess reserves of $21 million
B
If a bank has a capital to asset ratio of .1 and a return on equity of 10%, what is its return on assets? A) .1% B) 1% C) 10% D) 100%
B
If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can: A) repay its discount loans from the Fed B) sell $3 million of securities C) reduce deposits by $3 million D) increase loans by $3 million
B
In general, banks make profits by selling __________ liabilities and buying ___________ assets. A) long term; shorter term B) short term; longer term C) illiquid; liquid D) risky; risk free
B
Suppose a bank called Wise Guys initially starts with $20 million in capital. A total of $140 million in checkable deposits is received. The bank purchases securities worth of $55 million and the bank then makes a $65 million commercial loans and lends another $20 million in mortgage loans. If required reserve ratio is 10%, the bank keeps rest as excess reserves, and has no other assets or liabilities, how much required and excess reserves does this bank have? A) $19.2 and $30.8 mil B) $14 and $6 mil C) $12 and $8 mil D) $15 and $5 mil
B
Which of the following are reported as liabilities on a bank's balance sheet? A) reserves B) checkable deposits C) consumer loans D) deposits with other banks
B
Which of the following bank assets is the most liquid? A) consumer loans B) reserves C) state and local government securities D) US government securities
B
Considering the balance sheet for all commercial banks in the US, the largest category of liabilities is: A) borrowing from other banks in the US B) borrowings from non banks in the US C) savings deposits and time deposits D) checkable deposits
C
Holding large amounts of bank capital helps prevent bank failures because A) it means that the banks a higher income B) it makes loans easier to sell C) it can be used to absorb the losses resulting from bad loans D) it makes it easier to call in loans
C
If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $80,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is: A) $40,000 B) $30,000 C) $50,000 D) $25,000
C
If, after deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can A) reduce deposits by $3 million B) increase loans by $3 million C) sell $3 million of securities D) repay its discount loans from the Fed
C
Loans made in the federal funds market: A) are highly collateralized B) are insured by the FDIC C) are unsecured loans D) are made by the federal reserve system to the bank within 24 hours
C
When you deposit $50 in currency at old national bank A) its assets increase by less than $50 because of reserve requirements B) its reserves increase by less than $50 because of reserve requirements C) its liabilities increase by $50 D) its liabilities decrease by $50
C
Which of the following are transaction deposits A) savings accounts B) small denomination time deposits C) checkable deposits D) certificates of deposits
C
If a bank has a capital to asset ratio of .1 and a return on assets of 2%, what is its return on equity A) .2% B) 2.1% C) 5% D) 20%
D
Whats the largest asset type for a typical bank? A) securities B) cash C) consumer loans D) real estate loans
D
Loan sales:
Reselling mortgage, car, student loans -not on balance sheet
Loan commitment (line of credit)
bank guarantees a line of credit to a business for a fixed term. Receives fixed payments for such a guarantee -not on balance sheet
Standby letter of credit
bank insures commercial paper sold by corporations -not on balance sheet
Liabilities
everything an institution owes. Shows how it raised funds and generates expenses
Assets
everything an institution owns. Shows how it uses funds and generates revenues
Liquidity risk managements
how to manage sudden withdrawal of deposits
Capital adequacy management
maintaining optimal amount of capital