Chapter 12
Commercial banks increased their involvement in mortgages over the years due to: A. the ability to securitize mortgages which made them more liquid. B. the demands of regulators. C. the increase in commercial loans demanded due to the development of the commercial paper market. D. the reduced risk of borrowers' defaulting on mortgage loans.
A
Considering a bank's balance sheet, which of the following statements is false? A. Total Bank Assets + Total Bank Liabilities = Total Bank Capital B. Total Bank Assets = Total Bank Liabilities + Total Bank Capital C. Total Bank Liabilities = Total Bank Assets - Total Bank Capital D. Total Bank Capital = Total Bank Assets - Total Bank Liabilities
A
Considering the balance sheet for all commercial banks in the U.S., the net worth of banks is: A. about 12% of total liabilities. B. about 5 times total assets. C. about the same as total assets. D. about 4 times total liabilities.
A
Everything else equal, if the ratio of bank assets to bank capital decreases, the bank's return on equity should: A. decrease. B. remain constant. C. increase. D. cannot be determined from the information provided.
A
Considering U.S. commercial banks, loans account for: A. about one-third of total assets. B. one-half of total assets. C. two-thirds of liabilities. D. three-quarters of total assets.
B
Considering a bank's balance sheet, which of the following statements is true? A. Total Bank Assets = Total Bank Capital - Total Bank Liabilities B. Total Bank Assets = Total Bank Liabilities + Total Bank Capital C. Total Bank Assets + Total Bank Capital = Total Bank Liabilities D. Total Bank Assets + Total Bank Liabilities = Total Bank Capital
B
Considering the balance sheet for all commercial banks in the U.S., the largest category of liabilities is: A. borrowing from other banks in the U.S. B. saving's deposits and time deposits. C. checkable deposits. D. borrowings from non-banks in the U.S.
B
Considering the balance sheet for all commercial banks in the U.S., the net worth of banks is: A. about 5 times the total assets. B. about 1/11 of total assets. C. just about the same as total assets. D. about the same as total liabilities.
B
For every $100 in assets, a bank has $40 in interest-rate sensitive assets, and the other $60 in non-interest-rate sensitive assets. The same bank has $50 for every $100 in liabilities in interest-rate sensitive liabilities, the other $50 are in liabilities that are not interest-rate sensitive. If the interest rate on assets increases from 5 to 6 percent, and the interest rate on liabilities increases from 3 to 4 percent, the impact on the bank's profits per $100 of assets will be: A. an increase of $0.10. B. a decrease of $0.10. C. a reduction of $1.00. D. zero since the interest rates on assets and liabilities increased by the same amount.
B
If a bank has $150 million in assets and a net worth of $20 million, its asset-to-equity ratio is: A. 6.5 to 1. B. 7.5 to 1. C. 0.13 to 1. D. 0.15 to 1.
B
If a bank has customer deposits of $150 million, $15 million in reserves and the amount of excess reserves equals 0 (zero): A. the required reserve rate is 15 percent. B. the required reserve rate is 10 percent. C. the required reserve rate is 1 percent. D. the bank's net interest margin is zero (0).
B
If a bank has more interest-rate sensitive liabilities than interest-rate sensitive assets, an increase in the interest rate will cause profits to: A. increase. B. decrease. C. remain constant. D. be negative, meaning there will not be profits, only losses.
B
If a bank's return on equity remains constant, but the ratio of bank assets to bank capital increases: A. the bank's return on assets must have increased. B. the bank's return on assets must have decreased. C. the bank's assets and capital must have increased by the same percentage. D. the bank must be unprofitable.
B
If bank with leverage of 8 to 1 increases its assets by adding $1 to capital for every $1 added to assets: A. leverage increases. B. leverage decreases. C. leverage stays constant. D. the answer cannot be determined from the information in the question.
B
One way for a bank to deal with credit risk is to: A. charge all borrowers from the same industry an average rate for that industry. B. add a mark-up for a specific borrower based on the borrower's credit history to the cost of funds. C. avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries. D. increase the number of loans made in any year.
B
Repurchase agreements are usually used by banks that: A. have a need for long-term financing. B. need cash for a very short period of time. C. have negative net worth. D. cannot obtain financing from any other source.
B
Savings and loan institutions: A. are owned by the depositors. B. originally were formed primarily to make home mortgages. C. today offer a much smaller array of services than when originally formed. D. are owned by depositors who also have a common bond.
B
Secondary reserves for banks are: A. the same as the bank's net worth. B. mainly the bank's liquid securities. C. vault cash. D. deposits the bank has at the Federal Reserve.
B
The largest liability for commercial banks in the U.S. is: A. demand deposits. B. non-transaction deposits. C. borrowing from other U.S. banks. D. borrowing from the Federal Reserve.
B
The primary difference in certificates of deposit (CDs) that are equal to or less than $100,000 and those over $100,000 (other than the amount) is: A. a bank does not have to include CDs equal to or less than $100,000 in its liabilities. B. CDs greater than $100,000 are negotiable and therefore can be bought and sold. C. CDs equal to or less than $100,000 are issued for only six months or less. D. CDs greater than $100,000 are issued for only six months or less.
B
Which of the following is a bank liability? A. Mortgage loans B. Demand deposits C. Reserves D. U.S. Treasury securities
B
The federal funds market: A. is the term used for bank borrowing from the Federal Reserve System. B. is the lending to banks by the U.S. treasury when banks face liquidity emergencies. C. is the inter-bank market where excess reserves from one bank can be loaned to another bank. D. is the borrowing by American banks from foreign lenders.
C
The tendency for large banks to have a higher return on equity than small banks suggests: A. small banks have better management than large banks. B. large banks can charge higher interest rates than small banks. C. there could be significant economies of scale in banking. D. larger banks are better able to escape the cost of regulation.
C
The total assets of commercial banks in 2013 amounted to: A. three times nominal GDP in the U.S. B. about one-half of nominal GDP in the U.S. C. about four-fifths of nominal GDP in the U.S. D. about one-tenth of nominal GDP in the U.S.
C
Which of the following is a bank asset? A. Demand deposits B. Borrowings from other banks C. Mortgage loans D. CDs
C
Which of the following statements best completes this sentence: "On a bank's balance sheet..."? A. assets show the sources of funds and the net worth shows the uses of funds. B. net worth shows the sources of funds and liabilities show the uses of funds. C. assets show the uses of funds and liabilities show the sources of funds. D. net worth represents both a source and a use of funds.
C
Which of the following statements regarding checkable deposits is most accurate? A. Checkable deposits are a larger source of bank funds today than in 1970. B. Checkable deposits are no longer a source of bank funds. C. Checkable deposits are a less important source of bank funds today than in 1970. D. Checkable deposits continue to be the largest source of bank funds.
C
Why would a bank usually want to minimize the amount of excess reserves it has on hand?
Reserves are assets held in the form of vault cash and deposits at the Federal Reserve in a non-interest bearing account. As a result, the opportunity cost of holding reserves is usually high. Regulations require banks to hold a certain amount of reserves, called required reserves, but any amounts held above this level are excess reserves and the bank is forgoing the return that could have been earned on these funds.
One of the cash items included on the asset side of banks' balance sheets is reserves. What makes up reserves and what is their purpose?
Reserves are made up specifically of two items: one is cash in the bank, also referred to as vault cash. The other is deposits the bank has at the Federal Reserve. The main purpose of reserves is to make sure banks have enough liquidity to meet the demands of customers for withdrawal requests.
The difference between a bank's reserves and its required reserves is: A. profits. B. net interest income. C. excess reserves. D. vault cash.
C
Commercial banks differ from credit unions in the following way: A. credit unions focus on consumer loans while commercial banks primarily make loans to businesses. B. credit unions make loans and accept deposits while commercial banks just make loans. C. commercial banks cannot make auto loans to individuals, just to businesses while credit unions can do both. D. credit unions do not have to hold reserves while commercial banks do.
A
A bank faces foreign exchange risk when: A. it has assets denominated in one currency and liabilities in another. B. it lends to foreign borrowers because they are less likely to repay a U.S. bank. C. foreign governments restrict dollar-denominated payments. D. it has branches in other countries.
A
A bank that does not want to hold a lot of excess reserves but wants to manage liquidity risk is likely to: A. hold a lot in highly liquid securities. B. make sure that most of its assets are in small business loans. C. have a high ratio of loans to securities. D. limit withdrawals by customers.
A
A bank's Return on Equity (ROE) is calculated by: A. dividing the bank's net profit after taxes by the bank's capital. B. dividing the banks liabilities by the bank's capital. C. taking the bank's assets plus the net profit after taxes and dividing this sum by the bank's capital. D. dividing the bank's net profit after taxes by the sum of the bank's assets and its liabilities.
A
A bank's reserves include: A. vault cash. B. U.S. Treasury Securities. C. the bank's loan portfolio. D. U.S. Treasury bills and vault cash.
A
A category of assets for banks is cash items in the process of collection. This is: A. uncollected funds the bank is due to receive from the clearing of checks. B. currency the bank is due from the Treasury. C. late fees the bank is owed from loan payments that were not made on time. D. payments from the FDIC insurance fund due the bank.
A
A rumor starts that says a bank has suffered significant losses and may not be able to honor its promises to depositors. This causes most of the depositors to line up in front of the bank the next morning wanting to withdraw their deposits. This is an example of: A. liquidity risk. B. operational risk. C. interest rate risk. D. credit risk.
A
Capital is the cushion banks have against: A. sudden drops in the value of their assets. B. an unexpected decrease in liabilities. C. liquidity risk. D. moral hazard.
A
A non-transaction deposit would include each of the following, except: A. a savings account. B. a checking account. C. a passbook savings account. D. a certificate of deposit.
B
For every $100 in assets, a bank has $30 in interest-rate sensitive assets, and the other $70 in non-interest-rate sensitive assets. The same bank has $60 for every $100 in liabilities in interest-rate sensitive liabilities, the other $40 are in liabilities that are not interest-rate sensitive. If the interest rate on assets decreases from 6 to 5 percent, and the interest rate on liabilities decreases from 4 to 3 percent, the impact on the bank's profits per $100 of assets will be: A. a reduction of $0.30. B. an increase of $0.30. C. a reduction of $3.00. D. zero since the interest rates on assets and liabilities fell by the same amount.
A
If a bank's return on equity remains constant, but the ratio of bank assets to bank capital decreases: A. the bank's return on assets must have increased. B. the bank's return on assets must have decreased. C. the bank's assets and capital must have increased by the same percent. D. the bank must be unprofitable.
A
Money Center Banks differ from community banks in all of the following ways except: A. they are usually much smaller. B. they obtain their funds primarily through borrowing and not by deposits. C. they are a much smaller percentage of the total number of banks. D. they are actively engaged in the money market.
A
One of the lessons from the 2007-2009 financial crisis regarding the management of risk by financial institution is that: A. many banks lacked real-time information that would allow them to assess their various risk exposures at the bank-wide level. B. some banks, especially large ones, overestimated the trading risk associated with mortgage backed securities. C. banks were holding too much capital as a protection against market risk. D. many of the usual mechanisms for managing liquidity risk actually worked pretty well.
A
Regulators require a bank to hold some of its assets as reserves mainly to address: A. liquidity risk. B. trading risk. C. credit risk. D. operational risk.
A
Suppose a particular bank is very large in terms of assets, and makes consumer and residential loans as well as commercial and industrial loan. The bank is probably a: A. regional or super-regional bank. B. money center bank. C. community bank. D. savings bank.
A
The fact that a bank's assets tend to be long-term while its liabilities are short-term creates: A. interest-rate risk. B. credit risk. C. lower risk for the bank, this is why they follow this strategy. D. trading risk.
A
The weighted average difference between the interest received on assets and the interest rate paid for liabilities for a bank is the bank's: A. interest rate spread. B. net interest margin. C. net interest income. D. return on equity.
A
Which of the following bank assets would be categorized as secondary reserves? A. U.S. Treasury bills B. Cash C. Mortgage loans D. Deposits at the Federal Reserve
A
Which of the following is not a bank liability? A. Reserves B. Demand deposits C. Non-transaction deposits D. Federal fund borrowings
A
Which of the following statements is not true? A. The largest source of funds for banks to lend comes from the owner's capital. B. Transaction deposits make up less than 10 percent of banks sources of funds. C. The largest sources of funds for banks are non-transactions accounts. D. Borrowing is a larger source of funds for banks than transaction deposits.
A
Explain why a bank with a high debt-to-equity ratio may be more profitable than a bank with a lower ratio but would also have a higher level of risk.
A bank with a high debt-to-equity ratio is financing the acquisition of assets with borrowed funds. The return (profit) earned on these assets belong to the owners (the providers of the bank's capital or equity). With a high debt-to-equity ratio, the owners of the bank stand to earn a higher return on equity than the owners of a bank with a lower debt-to-equity ratio, assuming the same return on assets. The problem or the risk comes from the fact that with the high leverage anything that reduces the value of assets can potentially wipe out the capital of the bank, leaving the bank insolvent since the capital cushion is inadequate to meet the drop in asset value.
A bank that makes most of its long-term loans at adjustable interest rates is: A. reducing both interest rate and credit risk. B. increasing credit risk and reducing interest rate risk. C. reducing credit risk and increasing interest-rate risk. D. increasing both interest-rate and credit risk.
B
A bank that meets deposit withdrawal by borrowing additional funds will alter: A. the asset side of their balance sheet. B. the liabilities side of the balance sheet. C. the amount of bank capital. D. the asset and liabilities side of the balance sheet.
B
A bank's Return on Assets (ROA) is calculated by dividing: A. the bank's assets by its net worth. B. the bank's net profits after taxes by its assets. C. the bank's net worth by its assets. D. the bank's assets less its net profit after taxes by its net worth.
B
A bank's assets tend to be long-term while its liabilities are short-term. Therefore, when interest rates rise, the value of the bank's assets: A. increases by more than the value of its liabilities. B. will decrease by more than the value of its liabilities. C. increases and the value of its liabilities decreases. D. decreases and the value of its liabilities increases.
B
A bank's net interest margin is calculated by taking net interest income and: A. dividing it by the bank's capital. B. dividing it by the bank's assets. C. dividing it by the sum of the bank's assets and capital. D. subtracting taxes.
B
A bank's off-balance-sheet activities usually: A. increase both its assets and liabilities while reducing net income. B. increase its net income but do not change its assets or liabilities. C. increases a bank's liabilities but not its assets. D. increases a bank's assets but not its liabilities.
B
What are the securities that U.S. banks own and why are they often referred to as secondary reserves?
By regulation U.S. banks are not allowed to own stocks, so their securities are limited to bonds. And, for regulatory reasons, banks choose to hold U.S. government and agency bonds. Most of these bonds are highly liquid and in the case of need, can be sold quickly to back up the cash positions of the bank. As a result they are often referred to as secondary reserves.
A bank's loan loss reserves are: A. the amount of loans that have defaulted in the past twelve months. B. the same as equity capital. C. an amount the bank sets aside to cover potential losses from defaulted loans. D. a liability of the bank since it is a source of funds.
C
A bank's net worth is synonymous with its: A. assets. B. assets + a bank's liabilities. C. capital. D. required reserves.
C
A bank's reserves include: A. U.S. Treasury bills. B. currency in the bank but not currency in the ATM machines. C. the bank's deposits at the Federal Reserve. D. U.S. Treasury bills and currency in the bank.
C
A repurchase agreement is: A. an asset that represents the value of all collateral repossessed by the bank and held for sale. B. a long-term collateralized loan. C. an agreement where the parties agree to reverse the transaction on a specific day. D. only made between two or more banks.
C
Banks do not hold a lot of their assets in the form of cash mainly because of: A. regulation. B. the fear of being robbed. C. the opportunity cost of holding cash; cash does not earn interest. D. it can encourage employee theft.
C
Checkable deposits have decreased since the 1970's mainly because: A. regulators allowed higher rates to be paid on these accounts and banks found them to be highly unprofitable. B. people prefer to use credit cards rather than writing checks. C. these deposit accounts offer little or no interest so depositors find them to be expensive. D. as banks added fees to these accounts people increased their holdings of currency.
C
Everything else equal, if the ratio of bank assets to bank capital increases, the bank's return on equity should: A. remain constant. B. decrease. C. increase. D. cannot be determined from the information provided.
C
If Bank A sells some its loans to Bank B for cash, everything else equal: A. Bank A's assets decrease and Bank B's assets increase. B. Bank A becomes less liquid while Bank B becomes more liquid. C. Banks A's total assets do not change, but Bank A is more liquid. D. Bank A's liabilities decrease by the amount of the loans that are sold.
C
If a bank has $100 million in assets and a net worth of $10 million, its debt-to-equity ratio is: A. 10 to 1. B. 5 to 1. C. 9 to 1. D. 0.1 to 1.
C
If a bank has deposits of $250 million, reserves that total $30 million and has a required reserve rate of 10 percent: A. the bank is short of required reserves. B. the bank has excess reserves of $27.5 million. C. the bank has excess reserves of $5 million. D. the bank has excess reserves of $3 million.
C
If a bank sells off all of its assets and pays all of its liabilities, the amount remaining would be its: A. net profit. B. reserves. C. net worth. D. excess reserves.
C
If bank with $100 million in assets and $10 million in equity increases its assets by adding $1 to capital for every $1 added to assets: A. the debt-to-equity ratio will increase. B. the debt-to-equity ratio will remain constant. C. the debt-to-equity ratio will decrease. D. the answer cannot be determined from the information in the question.
C
Loans made in the federal funds market: A. are highly collateralized. B. are made by the Federal Reserve System to the bank within 24 hours. C. are unsecured loans. D. are insured by the FDIC.
C
Mergers resulting from the financial crisis of 2007-2009 have left what percentage of deposits in the hands of 4 banks? A. 10% B. 30% C. 40% D. 60%
C
Net interest income for a bank is: A. the difference between gross income and net income after taxes. B. the interest banks earn from uses of funds. C. the difference between interest income and interest expense. D. the difference between interest income and total expenses.
C
Of the more than 6,100 banks in the United States at the end of 2013, by far the greatest numbers of them were: A. regional banks. B. money center banks. C. community banks. D. savings banks.
C
One thing that is common for all bank loans is that they are: A. securitized. B. liquid. C. part of the banks' assets. D. unsecured.
C
The credit risk a bank faces is the risk resulting specifically from: A. the economy entering a recession. B. interest rates falling. C. some of the bank's loans not being repaid. D. the bank experiencing a decrease in deposits.
C
A bank that cannot meet its loan commitments is experiencing the results of: A. interest rate risk. B. credit risk. C. trading risk. D. liquidity risk.
D
A bank that specializes in granting loans to firms in a specific line of business: A. may decrease its operating cost and decrease its credit risk. B. may increase both its operating cost and its credit risk. C. may increase its operating cost and decrease its credit risk. D. may decrease its operating costs and increase its credit risk.
D
Bank's hold marketable securities as part of their assets. For U.S. banks these marketable securities include: A. stocks and bonds. B. only the stocks of U.S. corporations. C. only the bonds of the U.S. treasury. D. only bonds.
D
Considering the balance sheet for all commercial banks in the U.S., the largest category of assets is: A. cash items. B. U.S. Government Securities. C. required reserves. D. loans.
D
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 $21 million. C. the bank has excess reserves of $13 million. D. the bank has excess reserves of $3 million.
D
Many people believed that when the calendar changed from December 31, 1999 to January 1, 2000, many bank records were going to be wiped out, so many people planned on withdrawing their funds. If this were to happen, this would be an example of: A. credit risk. B. operational risk. C. interest rate risk. D. liquidity risk.
D
Savings and loans primarily provide: A. large commercial loans. B. unsecured credit card loans. C. student loans. D. home mortgages.
D
Suppose a particular depository institution that specializes in residential mortgages is owned by its depositors. The institution is probably a: A. regional or super-regional bank. B. money center bank. C. community bank. D. savings bank.
D
Suppose that a bank initially has a leverage ratio of 8 to 1. If this bank increases its capital by $1 million and its assets by $10 million, then the bank's: A. risk increases and its leverage decreases. B. liabilities decrease and its leverage increases. C. leverage decreases and its liabilities increase. D. leverage and risk increases.
D
The procedure that estimates the interest-rate sensitivity of a bank's assets and liabilities is called: A. managing credit risk. B. estimating operating risk differential. C. trading risk minimization. D. gap analysis.
D
Trading risk faced by U.S. banks results from: A. the free-rider problem. B. changes in regulations. C. adverse selection. D. moral hazard.
D
When interest rates fall a bank's capital will usually: A. not change. B. decrease. C. turn negative. D. increase.
D
Which of the following correctly portrays a bank's balance sheet? A. Total Bank Liabilities = Total Bank Capital + Total Bank Assets B. Total Bank Assets = Total Bank Capital - Total Bank Liabilities C. Total Bank Assets = Total Bank Liabilities - Total Bank Capital D. Total Bank Assets = Total Bank Liabilities + Total Bank Capital
D
Which of the following is not a bank asset? A. Securities B. Mortgage loans C. Reserves D. Non-transaction deposits
D
Which of the following statements best completes this sentence: "On a bank's balance sheet..."? A. liabilities show the uses of funds and assets show the sources of funds. B. assets show the sources of funds and the net worth shows the uses of funds. C. net worth shows the sources of funds and liabilities show the uses of funds. D. liabilities show the sources of funds and assets show the uses of funds.
D
Which of the following statements is most correct for U.S. commercial banks? A. Net interest margin is much larger than return on equity. B. Net interest margin is about equal to return on equity. C. Net interest margin averages about two times the return on equity. D. Net interest margin is closely related to the return on assets.
D
If a bank has a net worth that is negative, what do you know about the relationship between the amounts the bank has in assets and liabilities?
If a bank had a negative net worth, it means the bank's capital is less than zero. This can only be the case if the bank's liabilities exceed its assets.
Explain why non-transactions accounts have become a more important source of funds for the bank than transaction accounts over the past thirty years?
Non-transactions accounts include savings and time deposits, and certificates of deposit. Over the past quarter of a century financial innovation and technology have caused people to economize on their deposits in transaction accounts (checkable deposits) since most of these accounts paid little to no interest. The development of money market accounts and the technology that has allowed people to transfer funds out of savings accounts when their checking account balances run low has caused the balances in the savings accounts to increase significantly.
You are provided with the following information: a bank has a net income after taxes of $3.5 million; it has assets of $150 million; and bank capital of $12.5 million. What is the bank's return on assets; its return on equity, and its debt-to-equity ratio?
The bank's return on assets is 2.33%; this is obtained by dividing the $3.5 million in net income after taxes by the asset amount of $150 million and multiplying by 100 to convert the decimal into a percentage. The return on equity is 28.0%. We divide the $3.5 million in this case by the equity of $12.5 million and multiply by 100 to obtain our answer. The debt-to-equity ratio requires we first obtain the amount in liabilities. This is done by realizing that bank capital (equity) and total liabilities must equal total assets. So taking the amount in assets, $150 million, and subtracting the amount in capital, $12.5 million, leaves us with liabilities of $137.5 million. Dividing the $137.5 million by $12.5 million produces a debt-to-equity of 11 to 1.
What is the equation that reflects a bank's balance sheet?
The equation reflecting a bank's balance sheet is: Total Bank Assets = Total Bank Liabilities + Bank Capital
Identify the four broad categories that make up the asset side of the balance sheet for banks and which category is usually the largest.
The four categories that make up the asset side of the balance sheet for banks include: cash items, securities, loans and all other assets. The largest category is usually loans.
Explain why a bank manager and a bank regulator would likely view the timing at which a loan should be charged to the loan loss reserve differently.
The loan loss reserve is part of a bank's capital. A loan is part of a bank's assets. To charge a loan against this reserve will reduce both the bank's assets and its capital. A manager will try to avoid this scenario. Regulators, on the other hand, are more concerned with the bank's ability to meet its obligations, including the liquidity needs of its depositors. Non-performing loans, while they may appear as an asset are really not. The regulators would rather charge these off to the loan loss reserve and obtain a clearer view of the bank's actual capital position and its ability to meet its obligations and also to withstand a shock.
Considering that, on average, the return on assets is the same for small and large banks, and the return on equity is higher for large banks than small banks, what can be one of the explanations for the trend toward bank mergers?
The return on assets being the same suggests that large banks may not have any advantage in managing assets than small banks. The fact that large banks have a higher return on equity means that they must have higher leverage. This suggests that there are economies of scale in banking.
A bank has a need for cash for a short period of time to meet its liquidity needs. The bank has significant holding of U.S. treasury securities. The bank really does not want to sell the securities, realizing the liquidity need is a temporary problem. A pension fund has significant cash holdings and would like to earn some return on part of these holdings. The problem is the fund will need this cash in a few days to honor a purchase agreement it made for municipal bonds being issued. Is there any way these two organizations can work together to solve each other's problem?
This is a situation that is ideal for a repurchase agreement. Here the bank would agree to sell the Treasury securities (or some portion of them) to the pension fund in return for cash, and at the same time the bank would agree to buy the securities back at a future date (usually a day or two later) at a price equal to what the bank sold them for plus an additional amount reflecting the interest payment on the loan. In this way the bank gets the cash it needs and the securities back in a few days, and the pension fund earns income from the short-term loan and retains its cash position to make the securities purchase it planned.
