MB10

True

T/F: In the US, banks cannot invest checkable deposits in coporate bonds or common stocks

True

T/F: In the US, commercial banks cannot invest checkable deposits in corporate bonds or CS

loans

The largest category of bank assets are __

loan commitments

agreement by a bank to provide a borrower with a stated aount of funds during some specific period of time

gap analysis

an analysis of the difference between the dollar value of a bank's variable rate assets and the dollar value of its variable rate liabilties

excess reserves

any reserves banks hold above those necessary to meet reserve requirements

credit rationing

restriction of credit by lenders such that borrowers cannot obtain the funds they desire at the given interest rate

credit risk

risk that borrowers might default on their loans

1. loans to businesses 2. real estate loans 3. consumer loansq

3 categories of loans

1. liquidity 2. credit 3. interest rate

3 types of risk to manage

1. standby letter of credit 2. loan commitments 3. loan sale 4. trading activits

4 off balance sheet activites

deposits, loans

A bank's primary sources of funds are ___ and primary uses of funds are __

repos

Banks selling securities (TS) and agreeing to repurchase them the next day

liabilities, assets

Checkable deposits are __ to banks and __ to households

reserves

a bank asset consisting of vault cash + bank deposits with the FED

national bank

a federally chartered bank

federal deposit insurance

a government guarantee of deposit account balances up to $250,000

checkable deposits

accounts against which depositors can write checks. also called transaction deposits

off balance sheet activities

activites that do not affect a bank's balance sheet b/c they do not increase the bank's assets of liabilities

liquidity

asset management, liability management, reverse REPOs are ways to manage __ risk

cash items in the process of collection

cash asset that is claim banks have on other banks for uncollected funds

vault cash

cash on hand in a bank, includes currency in ARMs and deposits with other banks

demand deposits

checkable deposits on which banks so not pay interest

NOW

checking accounts that pay interest

net interest margin (ROA)

difference between the itnerest a bank receives on its securities and loans and the interest it pays on deposits and debt, divided by its earning asets (profit)/bank assets

bank capital

difference between the value of a bank's assets and the value of its liabilities; also called shareholders equity or net worth

credit

diversification, credit risk analysis, collateral, credit rationing, restrictive covenants, LT busn relationships are all ways to manage __ risk

loan sale

financial contract in which a bank agrees to sell the expected future returns from underlying bank loan to a third party - help a bank earn fee income

cash items in the process of collection

important cash asset of banks that banks have on other banks for uncollected funds

interest rate

interest rate swaps and floating rates can be used to mange this kind of risk

leverage

measure of how much debt an investor assumes in making an investment

liquidity risk

possibility that a bank may not be able to meet its cash needs by selling assets or raising funds at a reasonable cost

credit risk analysis

process that bank loan officers use to screen loan applicants

standby letter of credit

promise by a bank to lend funds, if necessary, to a seller of commerical paper at the time the commercial paper matures

ROE

ratio of the value of a bank's after-tax profit to the value of its capital - judges how a bank's managers are able to earn on the shareholder's investment

bank leverage

ratio of the value of a bank's assets to the value of its capital, inverse of which capital to assets

required reserves

reserves the FED requires banks to hold against demand deposit and NOW account balances

asset

something of value that an individual or a firm owns, in particular, a financial claim

liability

something that an individual or a firm owes, particulary a financial claim on an individual or a firm

balance sheet

statement that shows an individual's or a firm's financial position on a particular day

dual banking system

system in the US in which banks are chartered by eitehr a state govenment or the federal government

prime rate

the interest rate banks charged on 6-month loans to high quality borrowers, currently an interest rate banks charge primarily to smaller borrowers

bank leverage, leverage ratio

the ratio of assets to capital is one measure of __ __, the inverse of which is called a bank's __ __

capital requirements

to deal with risk government regulations implemented this to place limits on the value of the assets commercial banks can acquire relative to their capital

gap

type of analysis used to caculate the vulnerability of a bank's profits to changes in market interest rates