Bank Management Exam 1

The _________ expanded the FDIC's authority for open bank assistance. Depository Institutions Act (Garn-St. Germain) Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Competitive Equality Banking Act

PNC is a large depository institution. What balance sheet accounts for PNC would be affected (and how) if just as a real estate developer pays off a strip shopping mall loan, a new resident optometrist takes out a mortgage on a home? Decrease asset (real estate loan) & increase asset (mortgage loan) Decrease asset (real estate loan) & decrease asset (mortgage loan) Increase asset (real estate loan) & increase asset (mortgage loan) Increase asset (real estate loan) & decrease asset (mortgage loan) There is no effect on the balance sheet.

Decrease asset (real estate loan) & increase asset (mortgage loan)

Which of the following would be the least sensitive to changes in interest rates? Demand deposits Repurchase agreements Federal funds purchased Eurodollar liabilities Jumbo CDs

Demand deposits

The Federal Deposit Insurance Reform Act of 2005 created which of the following? Bank Insurance Fund Deposit Insurance Fund Savings Association Insurance Fund National Credit Union Shares Insurance Fund Federal Savings and Loan Insurance Fund

Deposit Insurance Fund

The _________ authorized money market deposit accounts. Depository Institutions Act (Garn-St. Germain) Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Depository Institutions Act (Garn-St. Germain)

The _________ mandated that the FDIC take prompt corrective action in dealing with bank failures. Depository Institutions Act (Garn-St. Germain) Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Depository Institutions Act (Garn-St. Germain)

Which type of financial institution has seen the largest drop in their share of U.S. financial assets? Depository institutions Mutual funds Insurance companies Pension plans Finance companies

Depository institutions

In 2010, Congress passed the ______________ which addressed a wide range of problems associated with the financial crisis, including Too Big to Fail banks. Sarbanes-Oxley Act Troubled Asset Relief Program Glass-Steagall Act Gramm-Leach-Bliley Act Dodd-Frank Act

Dodd-Frank Act

The Consumer Financial Protection Bureau was created as part of the: Hope for Homeowners Act Dodd-Frank Act Fair and Accurate Credit Transactions Act Gramm-Leach-Bliley Act Sarbanes-Oxley Act

Dodd-Frank Act

Which of the following formulas is NOT correct? Net interest income = interest income - interest expense Burden = noninterest expense - noninterest income Efficiency ratio = noninterest income / (net interest expense + noninterest expense) All of these are correct. none of these are correct

Efficiency ratio = noninterest income / (net interest expense + noninterest expense)

Which of the following is not a fundamental function of the Federal Reserve? Conduct the nation's monetary policy. Provide an effective payments system. Regulate banking operations. Ensure bank profitability. All of these are fundamental functions of the Federal Reserve.

Ensure bank profitability.

Bank L operates with an equity-to-asset ratio of 6%, while Bank S operates with a similar ratio of 10%. Calculate the equity multiplier for each bank if each bank earns 1.5% on assets. Equity multiplier (L) = 16.67x, equity multiplier (S) = 10x Equity multiplier (L) = 6x, equity multiplier (S) = 10x Equity multiplier (L) = 1.67x, equity multiplier (S) = 1x Equity multiplier (L) = 25x, equity multiplier (S) = 15x None of the above

Equity multiplier (L) = 16.67x, equity multiplier (S) = 10x

The primary federal regulator of state banks that are not members of the Fed is the: FDIC. Office of the Comptroller of the Currency. Office of Thrift Supervision. State's banking department. National Credit Union Administration.

FDIC.

Which of the following is the receiver of a failed depository institution? Federal Reserve Federal Deposit Insurance Corporation Office of the Comptroller of the Currency Office of Thrift Supervision Federal Savings and Loan Insurance Corporation

Federal Deposit Insurance Corporation

The primary federal regulator of state banks that are members of the Fed is the: Resolution Trust Corporation Federal Reserve Office of the Comptroller of the Currency State Banking Authorities. Federal Deposit Insurance Corporation.

Federal Reserve

Which of the following is not considered a volatile liability? Jumbo CDs Deposits in foreign offices Repurchase agreements Federal funds sold All of the above are considered volatile liabilities

Federal funds sold

The _________ created the Office of Thrift Supervision. Depository Institutions Act (Garn-St. Germain) Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Financial Institutions Reform, Recovery and Enforcement Act

Which of the following is NOT true regarding the Gramm-Leach-Bliley Act? GLB restricted banks from offering services and narrowed the lines of business available to them GLB allowed other financial services companies to offer traditional commercial banking products and services GLB may have been a factor that led to the financial crisis of 2007-2009. All of these are true. None of these are true.

GLB restricted banks from offering services and narrowed the lines of business available to them

Which act separated commercial banking, investment banking and insurance into three separate industries? Glass-Steagall Act Bank Holding Company Act McFadden Act Federal Reserve Act Competitive Equality Banking Act

Glass-Steagall Act

__________ have a large international presence. Global banks Nationwide banks Super Regional Banks Regional banks Specialty banks

Global banks

At the end of 2008, which of the following investment banks remained independent? Goldman Sachs Bear Stearns Lehman Brothers Merrill Lynch Bear Stears & Goldman Sachs

Goldman Sachs

The _________ gave regulatory responsibility over financial holding companies to the Federal Reserve. Riegle-Neal Interstate Banking and Branching Efficiency Act Gramm-Leach-Bliley Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Gramm-Leach-Bliley Act

The _________ repealed the Glass-Steagall Act. Riegle-Neal Interstate Banking and Branching Efficiency Act Gramm-Leach-Bliley Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Gramm-Leach-Bliley Act

The _________ requires disclosure of a bank's privacy policy. Riegle-Neal Interstate Banking and Branching Efficiency Act Gramm-Leach-Bliley Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Gramm-Leach-Bliley Act

The _______________ repealed the restriction on banks affiliating with securities firms under the Glass-Steagall Act. Gramm-Leach-Bliley Act Bank Holding Company Act Competitive Equality Banking Act Sarbanes-Oxley Act Financial Institutions Reform, Recovery and Enforcement Act

Gramm-Leach-Bliley Act

Which of the following is not a purpose of bank regulation? Guarantee minimal profitability of the banking system. Provide monetary stability. Ensure safety and soundness of banks. Provide a competitive financial system. Protect consumers from abuses by banks.

Guarantee minimal profitability of the banking system.

Given the following items, what is net income? ​ ItemAmountInterest paid on time deposits under $100,000$78,002Interest paid on jumbo CDs$101,000Interest received on U.S. Treasury and agency securities$44,500Fees received on mortgage originations$23,000Dividends paid to stockholders of $0.50 per share for 5,000 shares$2,500Provision for loan losses$18,000Interest and fees on loans$189,700Interest paid on interest checking accounts$33,500Interest received on municipal bonds$60,000Employee salaries and benefits$145,000Purchase of a new computer system (assume included in occupancy expense)$50,000Service charge receipts from customer accounts$41,000Occupancy expense for bank building$22,000Trust department income$15,000Assume taxes of 34% of taxable income are paid if taxable income. Otherwise, receive a tax benefit. $-24,302 $-16,039 $-32,565 $-18,539 $-35,065

$-16,039

Deposit insurance was increased to __________ per depositor in 2008. $100,000 $150,000 $250,000 $300,000 $500,000

$250,000

Originally, the FDIC insured deposits up to: $100,000 $50,000 $25,000 $10,000 $5,000

$5,000

Balance SheetAssetsCash and Due from Banks50Investments300Federal Funds10Loans350Premises90Average Total Assets800Liabilities & EquityDemand Deposits100Time Deposits300Federal Funds300Equity100Average Total Liabilities & Equity800Income StatementInterest Income100Interest Expense75Non-Interest Income5Non-Interest Expense25Net Income5 What is 1st State's burden ratio? 2.5% 17.5% 25.0% 75.5% 82.5%

2.5%

Balance SheetAssetsCash and Due from Banks75Investments400Federal Funds18Loans402Premises105Average Total Assets1,000Liabilities & EquityDemand Deposits150Time Deposits325Federal Funds425Equity100Average Total Liabilities & Equity1,000Income StatementInterest Income150Interest Expense110Non-Interest Income11Non-Interest Expense38Net Income13 What is 1st State's burden ratio? 2.7% 17.5% 25.0% 75.5% 82.5%

2.7%

Controlling interest in a bank is defined as ownership or indirect control of ____ of the voting shares in the bank. 15% 20% 25% 30% 51%

25%

Balance SheetAssetsCash and Due from Banks50Investments300Federal Funds10Loans350Premises90Average Total Assets800Liabilities & EquityDemand Deposits100Time Deposits300Federal Funds300Equity100Average Total Liabilities & Equity800Income StatementInterest Income100Interest Expense75Non-Interest Income5Non-Interest Expense25Net Income5 What is 1st State's net interest margin? 0.6% 3.8% 5.0% 8.2% 9.8%

3.8%

Balance SheetAssetsCash and Due from Banks75Investments400Federal Funds18Loans402Premises105Average Total Assets1,000Liabilities & EquityDemand Deposits150Time Deposits325Federal Funds425Equity100Average Total Liabilities & Equity1,000Income StatementInterest Income150Interest Expense110Non-Interest Income11Non-Interest Expense38Net Income13 What is 1st State's net interest margin? 0.6% 3.8% 4.9% 8.2% 9.8%

4.9%

AssetsCash and Due from Banks50Investments300Federal Funds10Loans350Premises90Average Total Assets800Liabilities & EquityDemand Deposits100Time Deposits300Federal Funds300Equity100Average Total Liabilities & Equity800Income StatementInterest Income100Interest Expense75Non-Interest Income5Non-Interest Expense25Net Income5 What is 1st State's return on equity? 0.6% 3.8% 5.0% 8.2% 9.8%

5.0%

Savings institutions must maintain what percent of their assets in housing-related assets to be considered a "Qualified Thrift Lender"? 100% 15% 70% 85% 65%

65%

A bank currently owns a municipal bond paying a tax-exempt rate of 5%. If the banks marginal tax rate is 35%, what is the taxable equivalent yield? 7.69% 3.25% 6.75% 3.70% 9.32%

7.69%

Balance SheetAssetsCash and Due from Banks75Investments400Federal Funds18Loans402Premises105Average Total Assets1,000Liabilities & EquityDemand Deposits150Time Deposits325Federal Funds425Equity100Average Total Liabilities & Equity1,000Income StatementInterest Income150Interest Expense110Non-Interest Income11Non-Interest Expense38Net Income13 What is 1st State's efficiency ratio? 2.5% 17.5% 25.0% 74.5% 82.5%

74.5%

What is the equity multiplier for a bank where equity is equal to 12% of total assets? 83.33 1.12 0.88 12.00 8.33

8.33

Balance Sheet Assets Cash and Due from Banks75 Investments400 Federal Funds18 Loans402 Premises105 Average Total Assets1,000 Liabilities & Equity Demand Deposits150 Time Deposits325 Federal Funds425 Equity100 Average Total Liabilities & Equity1,000 Income Statement Interest Income150 Interest Expense110 Non-Interest Income11 Non-Interest Expense38 Net Income13 What is the earnings base at 1st State? 12.5% 17.0% 58.5% 75.5% 82.0%

82.0%

Balance SheetAssetsCash and Due from Banks50Investments300Federal Funds10Loans350Premises90Average Total Assets800Liabilities & EquityDemand Deposits100Time Deposits300Federal Funds300Equity100Average Total Liabilities & Equity800Income StatementInterest Income100Interest Expense75Non-Interest Income5Non-Interest Expense25Net Income5 What is the earnings base at 1st State? 12.5% 17.5% 58.5% 75.5% 82.5%

82.5%

Balance SheetAssetsCash and Due from Banks50Investments300Federal Funds10Loans350Premises90Average Total Assets800Liabilities & EquityDemand Deposits100Time Deposits300Federal Funds300Equity100Average Total Liabilities & Equity800Income StatementInterest Income100Interest Expense75Non-Interest Income5Non-Interest Expense25Net Income5 What is 1st State's efficiency ratio? 2.53% 17.51% 0.83% 0.45% 83.3%

83.3%

Which of the following is a way that a OBHC differs from a MBHC? A OBHC controls only one bank, while MBHC control at least two banks. A OBHC controls more than one bank, while MBHCs control only one bank. A OBHC controls no more than two holding companies, while MBHCs control at least two commercial banks. The motivation behind a OBHC is to combine the bank's capabilities with the financial activities of their non-bank subsidiaries, but the motivation behind a MBHC is different.

A OBHC controls only one bank, while MBHC control at least two banks.

A financial holding company cannot own which of the following? A bank. A bank holding company. A thrift. A thrift holding company. A financial holding company may own all of the above.

A financial holding company may own all of the above.

Which of the following are computerized telecommunications systems that offer limited bank services without direct human involvement and generally charge a fee to the user for the access? Branch banking ATMs Internet banking call centers Mobile banking

ATMs

Which of the following is not a component of the Farm Credit System? Farm Credit Banks Agricultural Credit Associations Federal Land Credit Associations Farm Credit Administration Agricultural Lending Office

Agricultural Lending Office

A change in net interest income would occur when: the composition of the assets of the bank change. the average asset yield changes. the volume of the assets of the bank change. the average interest expense changes. All of the above

All of the above

Which of the following is NOT a true statement regarding profitability ratios? Profitability ratios differ when banks have different asset and liability compositions. Small banks typically report higher net interest margins than large banks Large banks typically have higher ROEs Large banks typically have lower efficiency ratios All of the above are true statements

All of the above are true statements

Which of the following are primary sources of risk that depository institution managers face? Credit risk Liquidity risk Market risk (interest rate risk) Market risk (foreign exchange risk) Operational risk Reputational risk Legal risk All of the above.

All of the above.

The Helping Families Save Their Homes Act of 2009 included provisions: intended to prevent mortgage foreclosures. to enhance the availability of mortgage credit. to protect renters living in foreclosed homes. All of these are correct. Only "intended to prevent mortgage foreclosures" & "to enhance the availability of mortgage credit" are correct

All of these are correct.

Which of the following is NOT an objective of depository institution regulation? Ensure the safety and soundness of the financial system Provide and efficient and competitive financial system Maintain monetary stability and the integrity of the payments system Protect consumers of financial services from abuses All of these are objectives of depository institution regulation

All of these are objectives of depository institution regulation

Which types of financial institutions appear best situated to gain from potential changes in the regulatory structure within the financial services arena? those with strong senior management those with a well-trained staff those with good market share those with small amounts of capital All of these except "those with small amounts of capital"

All of these except "those with small amounts of capital"

In 2008, the U.S. Treasury financial supported financial institutions by: All of these. purchasing troubled assets. buying preferred stock in some financial institutions. issuing guarantees on money market funds. increasing the deposit insurance limit.

All of these.

Which of the following would not be considered a commercial loan? An interim construction loan A working capital loan A loans to another financial institution A loan to purchase a piece of industrial equipment A loan to expand a factory

An interim construction loan

In the CAMELS ratings, which reflects the bank's off-balance sheet activities? Capital adequacy Asset quality Earnings quality Liquidity Sensitivity to market risk

Asset quality

Federal Reserve Reg. ____ makes it illegal for any lender to discriminate on the basis of national origin. AA BB Z C B

B

Which act limited the activities a company could engage in if it owned a bank? Bank Holding Company Act Federal Reserve Act McFadden Act Glass-Steagall Act Competitive Equality Banking Act

Bank Holding Company Act

Which of the following typically offer a complete set of banking services including loans, deposits, and money management/trust services? Branch Banking Automated Teller Machines Internet (Online) Banking Call Centers Mobile Banking

Branch Banking

_________ own(s) the bulk of demand deposit accounts. Consumers Businesses State governments The federal government Non-profits

Businesses

Which of the following consists of a centralized location designed for a bank's employees to receive and transmit calls? Branch banking ATMs Internet banking Call centers Mobile banking

Call centers

Which of the following is not represented in the CAMELS ratings. Cash adequacy Asset quality Management quality Liquidity Sensitivity to market risk.

Cash adequacy

Which of the following would not be considered an earning asset? Cash due from banks Municipal securities Treasury bills Repurchase agreements Mortgages

Cash due from banks

Which of the following is not one of the Fed's monetary policy tools? Open market operations Changes in the fed funds rate Changes in the discount rate Changes in the required reserve ratio All of these are monetary policy tools of the Fed

Changes in the fed funds rate

_________ allowed any institution to "truncate" the paper check at any point in the check clearing process. Riegle-Neal Interstate Banking and Branching Efficiency Act Fair and Accurate Credit Transactions Act Troubled Asset Relief Program Sarbanes-Oxley Act Check 21 Act

Check 21 Act

Total operating expense is comparable to _________ for a non-financial firm. sales cost of goods sold + other operating expenses interest expense earnings before taxes net income

cost of goods sold + other operating expenses

The U.S. government took all of the following actions to address the credit crisis in 2008 except: created the Keep Banks Solvent (KBS) agency. putting Fannie Mae into conservatorship. passed the Troubled Asset Relief Program (TARP). authorized large non-financial firms to sell bonds that were FDIC-insured. increased FDIC domestic deposit coverage to $250,000.

created the Keep Banks Solvent (KBS) agency.

Which of the following institutions' customers have a "common bond"? credit union commercial bank mortgage company savings bank thrift

credit union

All of the following are examples of operational risk except: fraud. compromised security data. theft. business interruptions. default on a loan.

default on a loan.

Bank assets fall into each of the following categories except: loans. investment securities. demand deposits. noninterest cash and due from banks. other assets.

demand deposits.

PNC is a large depository institution. What balance sheet accounts for PNC would be affected (and how) if the bank hires an investment banker to sell shares of stock to the public and plans to use the proceeds to finance additional commercial loans? Increase equity (common stock) & increase asset (commercial loans) Increase equity (common stock) & decrease asset (commercial loans) Decrease equity (common stock) & increase assets (commercial loans) Decrease equity (common stock) & decrease assets (commercial loans) There is no effect on the balance sheet.

Increase equity (common stock) & increase asset (commercial loans)

Which of the following is a measure of credit risk? Net loan charge offs/Loans (|Repriceable assets repriceable liabilities|)/Assets total assets/number of employees Core deposits/Assets All of the above

Net loan charge offs/Loans

Which of the following officially designates a bank as insolvent? Office of the Comptroller of the Currency Federal Reserve Office of Thrift Supervision Office of National Charters Resolution Trust Corporation

Office of the Comptroller of the Currency

Which of the following led to the sharp decline in bank profits in 2008? Record high loan loss provisions Record gains in trading activities Significant goodwill impairment expenses All of the above. Only "Record high loan loss provisions" & "Significant goodwill impairment expenses"

Only "Record high loan loss provisions" & "Significant goodwill impairment expenses"

Which of the following adjustments are made to gross loans and leases to obtain net loans and leases? The loan and lease loss allowance is subtracted from gross loans Unearned income is subtracted from gross interest received Investment income is added to gross interest received Only "The loan and lease loss allowance is subtracted from gross loans" & "Unearned income is subtracted from gross interest received" Only "The loan and lease loss allowance is subtracted from gross loans" & "Investment income is added to gross interest received"

Only "The loan and lease loss allowance is subtracted from gross loans" & "Unearned income is subtracted from gross interest received"

Jumbo certificates of deposit (CDs) typically: have maturities greater than 10 years.. are negotiable. are $1 million in size. All of the above Only "are negotiable." & "are $1 million in size."

Only "are negotiable." & "are $1 million in size."

Interest income includes: interest earned on all of the bank's assets. fees earned on all of the bank's assets. fees earned on all of the bank's deposit accounts. all of the above. Only "interest earned on all of the bank's assets." & "fees earned on all of the bank's assets."

Only "interest earned on all of the bank's assets." & "fees earned on all of the bank's assets."

Which of the following is NOT true regarding relationship banking? Relationship banking emphasizes the personal relationship between the banker and customer Relationship banking emphasizes standardized products at low prices. In relationship banking, lenders often add value to the borrower by providing business expertise. With relationship loans, lending institutions generally charge higher rates.

Relationship banking emphasizes standardized products at low prices.

Which of the following would a bank generally classify as a short-term investment? Demand deposits Deposits at the Federal Reserve Repurchase agreements Fed Funds purchased Vault cash

Repurchase agreements

Which of the following is not a channel for delivering banking services? Mobile banking. Online banking. Automated Teller Machines. Branch banking. Retail banking.

Retail banking.

Which of the following would be considered an extraordinary item on an income statement of a bank? Revenue from the sale of the bank's office building. Interest income when the spread is greater than 10%. Realized security gains. Collection on loans already charged off. All of the above would be considered extraordinary items.

Revenue from the sale of the bank's office building.

The _________ allows adequately capitalized bank holding companies to acquire banks in any state. Riegle-Neal Interstate Banking and Branching Efficiency Act Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act Federal Deposit Insurance Corporation Improvement Act Depository Institutions Deregulation and Monetary Control Act

Riegle-Neal Interstate Banking and Branching Efficiency Act

___-corps have favorable tax treatment because a qualifying firm does not pay corporate income taxes. C Q S V Z

S

The _________ established to Public Company Oversight Board to regulate public accounting firms that audit publicly-traded companies. Riegle-Neal Interstate Banking and Branching Efficiency Act Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act Sarbanes-Oxley Act Depository Institutions Deregulation and Monetary Control Act

Sarbanes-Oxley Act

______________ refers to the process of pooling a group of assets with similar features and issuing securities that are collateralized by the assets. Originate-to-Resell Securitization Mortgage Collateralization Deposit Origination Loan-to-Distribute

Securitization

Which of the following bank assets is the most liquid? Long-term investments Short-term investments Loans Demand deposits Unearned income

Short-term investments

Which of the following allows depository institutions to borrow for a fixed term against a variety of collateral that is normally accepted for discount window loans? Term Auction Facility Term Securities Lending Facility Primary Dealer Credit Facility Troubled Asset Relief Program Housing and Economic Recovery Facility

Term Auction Facility

Which of the following loans Treasury securities to primary dealers in exchange for other securities held by the dealers? Term Auction Facility Term Securities Lending Facility Primary Dealer Credit Facility Troubled Asset Relief Program Housing and Economic Recovery Facility

Term Securities Lending Facility

Which of the following is false regarding community banks? They typically have extensive operations in specific regions of the country. They typically operate in a limited geographic area. They often focus on lending to small businesses. The bulk of their funding comes from deposits. They tend to grow at a modest rate.

They typically have extensive operations in specific regions of the country.

Which of the following was a goal of the Depository Institutions Deregulation and Monetary Control Act of 1980? To reduce the range of banking services offered. To allow banks to pay market rates on deposits. To allow banks to make long-term mortgage loans. To allow banks to offer Money Market Deposit Accounts. To reduce the number of leveraged buyouts.

To allow banks to pay market rates on deposits.

What is the primary motivation today of forming a financial holding company? To increase speculation. To branch across state lines. To engage in activities not permitted in a bank holding company. To branch within a particular states boundaries. To reduce the risk of bank failures.

To engage in activities not permitted in a bank holding company.

Which of the following is NOT true regarding transactions banking? Transactions banking involves the provision of transactions services. Transactions banking involves items that occur with high frequency and exhibit standardized features. Transactions banking encourages the use of technology to offer standardized products at a low price. Transactions banking involves items that occur with low frequency and do not exhibit standardized features.

Transactions banking involves items that occur with low frequency and do not exhibit standardized features.

The _________ authorized the Treasury to purchase debt securities issued by the Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and to purchase common stock. Treasury Emergency Authority Provisions Foreclosure Prevention Act Troubled Asset Relief Program Primary Dealer Credit Facility Check 21 Act

Treasury Emergency Authority Provisions

The _________ created a fund originally designed to allow the U.S. Treasury to purchase distressed assets from financial institutions. Capital Purchase Program Foreclosure Prevention Act Troubled Asset Relief Program Primary Dealer Credit Facility Check 21 Act

Troubled Asset Relief Program

What is an asset write-down? When a financial institution formally recognizes that loans they hold on their balance sheet are worth much less than the amount of funds owed. When a financial institution formally recognizes that loans they hold on their balance sheets are worth much more than the amount of funds owed. When a financial institution formally recognizes that loans they hold on their income statement are worth much less than the amount of funds owed. When a financial institution formally recognizes that loans they hold on their income statement are worth much more than the amount of funds owed.

When a financial institution formally recognizes that loans they hold on their balance sheet are worth much less than the amount of funds owed.

Federal Reserve Reg. ____ requires disclosure of as to why a costumer was denied credit. AA BB Z C B

Z

The efficiency ratio measures: a bank's ability to control interest expense. a bank's ability to control non-interest expense. a bank's spread. a bank's burden. a bank's operating leverage.

a bank's ability to control non-interest expense.

A bank that deals primarily with commercial customers is called: an Edge Act bank. a retail bank. a wholesale bank. a uniform bank. a liability bank.

a wholesale bank.

Historically, a commercial bank was defined as a firm that: accepted NOW accounts and made consumer loans. accepted demand deposits and made business loans. accepted government deposits and made public loans. accepted demand deposits and made consumer loans. is regulated by the Federal Reserve.

accepted demand deposits and made business loans.

Everything else the same, a bank's "burden" would most likely increase given: a decrease in overhead expenses. an increase in interest rates. a decrease in interest rates. an increase in executive salaries. an increase in service charges collected by the bank.

an increase in executive salaries.

Classified loans: still accrue interest. have not had a principle or interest payment made in 90 days. exactly offset gross charge-offs. are loans in which regulators have forced management to set aside reserves. all of the above

are loans in which regulators have forced management to set aside reserves.

Return on assets can be calculated as: return on equity plus the equity multiplier. net interest income divided by earning assets. asset utilization minus the expense ratio and the tax ratio. interest income minus interest expense. earning assets divided by average total assets.

asset utilization minus the expense ratio and the tax ratio.

Securities that require unrealized gains or losses to be recorded as a change in stockholder's equity are called: held-to-maturity securities. trading account securities. available-for-sale securities. revenue securities. repurchase agreements

available-for-sale securities.

A negotiable instrument often used in trading goods that guarantees payment to the owner the instrument is known as (a): bankers acceptance. payment guarantee. commercial paper. bankers payment. repurchase agreement.

bankers acceptance.

Jumbo CDs that a bank obtains from a third-party broker are called: money market demand accounts. time deposit accounts. mortgage loans. brokered deposits. core deposits.

brokered deposits.

The largest component of "non- interest cash and due from banks" is: cash items in process of collection. deposits held at other financial institutions. federal funds sold. vault cash. loans from the Federal Reserve.

cash items in process of collection.

Which of the following is not part of the acronym CAMELS? Capital adequacy Asset quality Management Quality Earnings Quality Loan Quality Sensitivity to market risk. All of these are part of CAMELS

Loan Quality

Which of the following is not a characteristic of a typical commercial bank? Most banks own few fixed assets. Most banks have a high degree of operating leverage. Most banks have few fixed costs. Many bank liabilities are payable on demand. Banks generally operate with less equity capital than non-financial firms.

Most banks have a high degree of operating leverage.

Which of the following would a bank generally classify as a long-term investment? Treasury bill Vault cash Cash items in process of collection Municipal bond Repurchase agreements

Municipal bond

Checking accounts with unlimited check-writing and pay interest are known as: demand deposit accounts. money market deposit accounts. NOW accounts. certificates of deposit. time deposits.

NOW accounts.

Deposits at credit unions are insured by the: National Credit Union Association. Federal Credit Union Administration. Federal Reserve. Federal Deposit Insurance Corporation. Credit Union Insurance Corporation.

National Credit Union Association.

Which of the following is are only available to non-commercial customers? Money Market Demand Accounts Demand deposit accounts Mortgage loans Negotiable Orders of Withdrawal (NOW) accounts Auto leases

Negotiable Orders of Withdrawal (NOW) accounts

Net income is defined as: Net interest income - burden + provision for loan loss + securities gains or losses - taxes. Net interest income + burden + provision for loan loss + securities gains or losses - taxes. Net interest income - burden - provision for loan loss + securities gains or losses - taxes. Net interest income - burden - provision for loan loss + securities gains or losses + taxes. Net interest income + burden - provision for loan loss + securities gains or losses - taxes.

Net interest income - burden - provision for loan loss + securities gains or losses - taxes.

Which of the following statements is/are correct? Higher capital requirements often result in a higher cost of capital for banks. Small banks have greater access to the equity markets than large banks. Higher capital requirements encourage small banks to consolidate into larger banks. All of these are correct. Higher capital requirements often result in a higher cost of capital for banks & Higher capital requirements encourage small banks to consolidate into larger banks.

Higher capital requirements often result in a higher cost of capital for banks & Higher capital requirements encourage small banks to consolidate into larger banks.

Rank the following assets from lowest to highest liquidity risk: I. Three-month Treasury bills II. Four-year car loan with monthly payments III. Five-year Treasury bond IV. One-year individual loan to speculate in stocks V. Three-month Treasury bill pledged as collateral I, III, II, IV, V I, II, III, IV, V I, V, IV, II, III V, IV, II, III, I

I, III, II, IV, V

The parent bank holding company assists bank subsidiaries with all of the following except: asset and liability management. strategic planning. loan review. deposit insurance. business development.

deposit insurance.

Which of the following is NOT part of the CAMELS acronym? Capital adequacy asset quality management efficiency liquidity Sensitivity to market risk

efficiency

Banks created Section 20 affiliates to: engage in investment banking activities. make international loans. purchase savings and loans. invest in junk bonds. compete with general-purpose finance companies.

engage in investment banking activities.

Unsecured liabilities created from the exchange of immediately available funds are known as: federal funds purchased. repurchase agreements. federal funds sold. pledged securities. brokered deposits.

federal funds purchased.

A bank's equity multiplier measures the bank's: financial leverage. operating leverage. credit leverage. interest rate exposure. duration gap.

financial leverage.

The volume of net deferred credit is commonly referred to as: the burden. NOW balances. reserve requirements. equity. float.

float.

Relative to wholesale banks, retail banks: focus on individual consumer banking relationships. operate with fewer consumer deposits. purchase more non-core liabilities. hold proportionally more business loans to large firms. All of the above.

focus on individual consumer banking relationships.

Net interest income is the difference between: gross interest income and net interest expense. gross interest income and non-interest income. the burden and realized gains or losses. non-interest income and net interest expense. gross interest income and gross interest expense.

gross interest income and gross interest expense.

All other things constant, securities that are extremely liquid: earn higher rates of return than securities that are less liquid. have a longer maturity than less liquid securities. have lower risk than less liquid securities. Only "earn higher rates of return than securities that are less liquid." & "have a longer maturity than less liquid securities." Only "have a longer maturity than less liquid securities." & "have lower risk than less liquid securities."

have lower risk than less liquid securities.

FASB 115 requires historical costs to be used for: trading account securities. available-for-sale securities. retained earnings. held-to-maturity securities. net income.

held-to-maturity securities.

Non-interest expenses includes all of the following except: occupancy expenses. goodwill impairment. insufficient funds service charges. personnel expenses. all of the above are considered non-interest expense.

insufficient funds service charges.

Which of the following is NOT an example of noninterest income? deposit service charges trust department fees fees from nonbank subsidiaries interest earned on loans all of these are examples of noninterest income

interest earned on loans

The expense ratio is calculated as: total revenue - total operating expenses. total revenue - total operating expenses - taxes. interest expense ratio - non-interest expense ratio - provision for loan loss ratio. asset utilization - expense ratio - tax ratio. interest expense ratio + non-interest expense ratio + provision for loan loss ratio.

interest expense ratio + non-interest expense ratio + provision for loan loss ratio.

Which of the following is NOT an example of noninterest expense? interest paid on noncore liabilities overhead costs personnel costs None of these are examples of noninterest expense All of these are examples of noninterest expense

interest paid on noncore liabilities

The primary appeal of online banking is: prevention of identity theft. high-volume traffic. lack of face-to-face interaction. its convenience. the ability to make small dollar purchases.

its convenience.

Core deposits consist of all of the following except: demand deposits. NOW accounts. jumbo certificates of deposit. savings accounts. money market demand accounts.

jumbo certificates of deposit.

Which of the following statements is FALSE? larger banks hold a smaller percentage of assets in loans relative to deposits than smaller banks. larger banks hold a larger percentage of assets in loans relative to deposits than smaller banks. Smaller banks generally operate with proportionately more core deposits and fewer volatile liabilities as compared with the largest banks large banks have far greater access to purchased funds in the money and capital markets. All of the above are true.

larger banks hold a smaller percentage of assets in loans relative to deposits than smaller banks.

Non-interest income includes all of the following except: monthly fee income on checking accounts. late fees on loans. trust income. insufficient funds service charges. all of the above are considered non-interest income.

late fees on loans.

The risk that a bank cannot meet payment obligations in a timely and cost-effective manner is known as: credit risk. capital risk. market risk. operating risk. liquidity risk.

liquidity risk.

Subprime loans are... mortgage loans. loans made to borrowers with low credit scores and a higher-than-average risk of default. loans made to borrowers with high credit scores and lower-than-average risk of default. loans made to borrowers with low credit scores and a lower-than-average risk of default.

loans made to borrowers with low credit scores and a higher-than-average risk of default.

Banks generate their largest portion of income from: loans. short-term investment. demand deposits. long-term investments. certificates of deposit.

loans.

A formal regulatory document that prescribes corrective action for a problem institution is called a: cease and desist order. capital request. memorandum of understanding. quality assurance directive. national bank order.

memorandum of understanding.

Which of the following allows customers to use cell phones to conduct banking business? branch banking ATMs Online banking call centers mobile banking

mobile banking

The lack of incentive to guard against risk where one is protected from it is known as: risk aversion too big to fail protection guarantee incentive failure moral hazard

moral hazard

An example of securitization is... mortgages are loans that are secured by residential or commerical real estate. mortgages are loans that are unsecured by residential or commercial real estate. loans made to borrowers with low credit scores. loans made to borrowers with high credit scores.

mortgages are loans that are secured by residential or commerical real estate.

Bank holding companies and financial holding companies generally do not pay income tax because: they are always chartered as non-profit corporations. most of their income is subsidiary paid dividends, of which 80% is tax-exempt. the subsidiaries always operate at a net loss. bank holding companies must carry deposit insurance. bank holding companies are not subject to Internal Revenue Service regulations.

most of their income is subsidiary paid dividends, of which 80% is tax-exempt.

A __________ controls at least two commercial banks. one-bank holding company state holding company national holding company multibank holding company financial holding company

multibank holding company

Loans typically fall into each of the following categories except: real estate. individual. commercial. agricultural. municipal.

municipal.

A bank's "burden" is defined as: net interest income minus non-interest income. non-interest income minus non-interest expense. non-interest expense minus non-interest income. net interest income plus non-interest income. interest expense plus non-interest expense.

non-interest expense minus non-interest income.

An "independent" bank is: an "independent" subsidiary of a multi-bank holding company. another name for a one-bank holding company. a bank that is exempt from paying federal income taxes. a bank that is specifically created to underwrite corporate debt issues. not controlled by a multi-bank holding company or any other outside interest.

not controlled by a multi-bank holding company or any other outside interest.

Many insurance companies have formed __________ to operate banks as part of their financial services efforts. one-bank holding companies multibank holding companies retail subsidiaries finance companies financial holding companies

one-bank holding companies

Typically, "call loans" are: residential mortgages. farm loans. demand deposits. payable on demand. automobile loans.

payable on demand.

Non-interest income includes all of the following except: checking account fees. insufficient funds service charges. trust income. personnel expenses. all of the above are considered non-interest income.

personnel expenses.

A primary purpose of maintaining the safety and soundness of banks is to: encourage loan growth. protect depositors. ensure liquidity for the stock market. prevent discrimination. minimize bank losses.

protect depositors.

Relative to retail banks, wholesale banks: deal primarily with consumers. operate with fewer commercial deposits. purchase more non-core liabilities. hold proportionally more consumer loans. All of the above.

purchase more non-core liabilities.

Interest expense varies between banks because of: rate effects. composition effects. volume effects. all of the above. Only "rate effects." & "volume effects."

rate effects.

A loan to an individual to purchase a home would be considered a: consumer loan. commercial loan. agricultural loan. construction loan. real estate loan.

real estate loan.

Savings and loans have historically specialized in: commercial loans. auto loans. mutual loan. real estate loans. demand deposit accounts.

real estate loans.

The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries: received an unsatisfactory in its most recent Community Reinvestment Act exam. has branches across state lines. is part of a bank holding company. makes subprime loans. is well capitalized.

received an unsatisfactory in its most recent Community Reinvestment Act exam.

Securities that are "held-to-maturity" are: trading account securities. recorded on the balance sheet at amortized cost. marked-to-market. Only "trading account securities." & "recorded on the balance sheet at amortized cost." Only "trading account securities." & "marked-to-market."

recorded on the balance sheet at amortized cost.

A savings and loan that sold off their junk bond holdings and issued consumer auto loans with the proceed would most likely be: decreasing their market risk. increasing their capital risk. decreasing their legal risk. increasing their operating risk. reducing their credit risk.

reducing their credit risk.

The "provision for loan and lease losses": are the realized losses from the previous accounting period. represents management's estimate of potential lost revenue from bad loans. determined by the Federal Reserve for all banks. does not affect net income. is another name for a bank's "burden."

represents management's estimate of potential lost revenue from bad loans.

Total operating income is comparable to _________ for a non-financial firm. sales cost of goods sold gross profit earnings before interest and taxes net income

sales

Bank regulations: can prevent bank failures. can eliminate economic risk for banks. serve as guidelines for sound operating policies. guarantee bankers will make sound management decisions. guarantee bankers act in an ethical manner.

serve as guidelines for sound operating policies.

Commercial banks mostly specialize in: mortgages. mutual loans. short-term business credit. savings accounts. share draft accounts.

short-term business credit.

A bank's core deposits are: vault cash. stable deposits that are not typically withdrawn over short periods of time. the bank's deposits at the Federal Reserve. the most interest rate sensitive liabilities of a bank. deposits held in foreign offices.

stable deposits that are not typically withdrawn over short periods of time.

Recoveries refer to: the dollar value of loans actually written off as uncollectible. the dollar amount of loans that were previously charged-off but now collected. net charge-offs. loans not currently accruing interest. loans that regulators have required the bank to "recover".

the dollar amount of loans that were previously charged-off but now collected.

An example of a contra-asset account is: the loan and lease loss allowance. unearned income. buildings and equipment. revenue bonds. the provision for loan loss.

the loan and lease loss allowance.

Return on equity can be decomposed into: the sum of return on assets and the equity multiplier. the product of return on assets and the equity multiplier. the product of the profit margin and the equity multiplier. the sum of the profit margin and the equity multiplier. the sum of the profit margin, equity multiplier, and the interest ratio.

the product of return on assets and the equity multiplier.

Everything else the same, financial leverage works to a bank's advantage when: the return on assets is positive. the return on assets is negative. fixed assets are high. fixed assets are low. Only "the return on assets is positive." & "fixed assets are low."

the return on assets is positive.

Today, the primary motivation behind forming a bank holding company is: to reduce competition. the ability to circumvent restrictions on branching. to broaden the scope of products the bank can offer. to increase deposit concentration. All of these are motivating factors today for forming a bank holding company.

to broaden the scope of products the bank can offer.

The goal of a bank manager should be: to maximize earnings. to minimize taxes. to minimize risk. to maximize shareholder wealth. to maximize net interest income.

to maximize shareholder wealth.

Net income is calculated as: total revenue - total operating expenses. total revenue - total operating expenses - taxes. asset utilization - expense ratio. asset utilization - expense ratio - tax ratio. interest expense ratio - non-interest expense ratio - provision for loan loss ratio.

total revenue - total operating expenses - taxes.

Securities that require unrealized gains or losses to be recorded on the income statement are called: held-to-maturity securities. trading account securities. available-for-sale securities. revenue securities. repurchase agreements

trading account securities.

Many insurance companies have organized as a _____________ in order to own a depository institution and bypass prohibitions in the Glass-Steagall Act and the Bank Holding Company Act. unitary thrift holding company commercial bank mortgage company savings bank credit union

unitary thrift

Given the following items, what is net interest income? ItemAmountInterest paid on time deposits under $100,000$78,002Interest paid on jumbo CDs$101,000Interest received on U.S. Treasury and agency securities$44,500Fees received on mortgage originations$23,000Dividends paid to stockholders of $0.50 per share for 5,000 shares$2,500Provision for loan losses$18,000Interest and fees on loans$189,700Interest paid on interest checking accounts$33,500Interest received on municipal bonds$60,000Employee salaries and benefits$145,000Purchase of a new computer system (assume included in occupancy expense)$50,000Service charge receipts from customer accounts$41,000Occupancy expense for bank building$22,000Trust department income$15,000Assume taxes of 34% of taxable income are paid if taxable income. Otherwise, receive a tax benefit. $294,200 $81,698 $212,502 $122,698 $-6,302

$81,698

Currently, the Fed sets the discount rate __________ the target fed funds rate. 1% - 1.5% below 2% - 2.5% below 3% - 3.5% above 2% - 2.5% above 1% - 1.5% above

1% - 1.5% above

At the end of 2013, there were approximately ______ independent banks and thrifts in operation in the United States. 300 1,800 4,200 4,500 6,300

1,800

What is the equity multiplier for a bank where equity is equal to 10% of total assets? 90.00 10.00 1.10 110.00 1.00

10.00

What is the return on equity for a bank that has an equity multiplier of 9, an interest expense ratio of 6%, and a return on assets of 1.2%? 10.8% 6.0% 8.0% 4.8% 0.65%

10.8%

A bank currently owns a municipal bond paying a tax-exempt rate of 6.5%. If the banks marginal tax rate is 40%, what is the taxable equivalent yield? 3.90% 10.83% 9.10% 4.64% 9.32%

10.83%

S-corps must have no more than ___ shareholders. 10 50 100 500 1,000

100

The Federal Reserve has Reserve Banks and branches in ___ districts across the country. 10 12 14 16 18

12

What is the equity multiplier for a bank where equity is equal to 8% of total assets? 1.08 8.00 0.92 12.5 1.25

12.5

What is the return on equity for a bank that has an equity multiplier of 14, an interest expense ratio of 4%, and a return on assets of .9%? 1.3% 4.0% 9.0% 12.6% 8.6%

12.6%

Balance SheetAssetsCash and Due from Banks75Investments400Federal Funds18Loans402Premises105Average Total Assets1,000Liabilities & EquityDemand Deposits150Time Deposits325Federal Funds425Equity100Average Total Liabilities & Equity1,000Income StatementInterest Income150Interest Expense110Non-Interest Income11Non-Interest Expense38Net Income13 What is 1st State's return on equity? 0.6% 3.8% 5.0% 8.2% 13.0%

13.0%

A bank currently owns a municipal bond paying a tax-exempt rate of 8%. If the banks marginal tax rate is 39%, what is the taxable equivalent yield? 11.12% 4.88% 13.11% 5.76% 9.32%

13.11%

What is the return on equity for a bank that has an equity multiplier of 12, an interest expense ratio of 5%, and a return on assets of 1.1%? 5.0% 13.2% 8.2% 26.4% 0.66%

13.2%

PNC is a large depository institution. What balance sheet accounts for PNC would be affected (and how) if Arturo Rojas opens a money market deposit account with $5,000 and the funds are lent in the overnight market for one week? Increase liabilities (money market deposit account) by $5,000 & Increase assets (Federal funds sold) by $5,000 Decrease liabilities (money market deposit account) by $5,000 & Decrease assets (Federal funds sold) by $5,000 Increase liabilities (money market deposit account) by $5,000 & Decrease assets (Federal funds sold) by $5,000 Decrease liabilities (money market deposit account) by $5,000 & Increase assets (Federal funds sold) by $5,000 There is no effect on the balance sheet.

Increase liabilities (money market deposit account) by $5,000 & Increase assets (Federal funds sold) by $5,000

Which of the following is not a techniques that banks use to "manage earnings"? Window dressing Nonrecurring sales of assets Adjusting the allowance for loan losses Increasing loans classified as non-performing All of the above are techniques that banks use to "manage earnings"

Increasing loans classified as non-performing

Which of the following mortgage types were offered to "subprime" borrowers? Interest only and Option Adjustable-Rate Interest Only Principal Only All of these.

Interest only and Option Adjustable-Rate

Which of the following allows customers to access their account information and conduct routine banking business via secured Web sites? Branch Banking Automated Teller Machines Internet (Online) Banking Call Centers Mobile Banking

Internet (Online) Banking

Which type of risk is the most difficult to quantify? Credit risk Liquidity risk Legal risk Operating risk Market risk

Legal risk

Which of the following is NOT a reason why independent commercial banks may fall sharply over the next few years. Additional regulation will encourage consolidation, which will sharply reduce the number of independent commercial banks. The TARP program continues to reduce the number of independent commercial banks as it encourages consolidation for the banks with TARP preferred stock outstanding. Independent banks have less flexibility compared to bank holding companies in terms of the number and breadth of activities they can engage in. This reduces the competitiveness of the independent bank. Less regulation will encourage consolidation, which will sharply reduce the number of independent commercial banks.

Less regulation will encourage consolidation, which will sharply reduce the number of independent commercial banks.

Which of the following is not part of the CAMELS ratings? Capital adequacy. Asset quality. Earnings quality. Liabilities quality. Sensitivity to market risk.

Liabilities quality.

Which of the following is the most flexible of the Fed's tools for implementing monetary policy? Changes in the fed funds rate Changes in the required reserve ratio Changes in the discount rate Open market operations Private placements

Open market operations

Which of the following is not one of the risks identified by the Federal Reserve Board? Credit risk Market risk Ownership risk Reputation risk Legal risk

Ownership risk

Which of the following is an overnight collateralized loan facility that provides loans for up to 120 days to primary dealers in exchange for a broad range of collateral? Term Auction Facility Term Securities Lending Facility Primary Dealer Credit Facility Troubled Asset Relief Program Housing and Economic Recovery Facility

Primary Dealer Credit Facility

Bank L operates with an equity-to-asset ratio of 6%, while Bank S operates with a similar ratio of 10%. Calculate the return on equity for each bank if each bank earns 1.5% on assets. ROE (L) = 25%, ROE (S) = 15% ROE (L) = 2.5%, ROE (S) = 1.5% ROE (L) = 9%, ROE (S) = 15% ROE (L) = 0.09%, ROE (S) = 0.15% None of the above

ROE (L) = 25%, ROE (S) = 15%