Commercial Banking - Chapter 11

What is an indicator of potential demand for new loans?

Some services are too expensive to provide independently or cannot be provided by respondent banks due to regulatory constraints.

Understand the purpose of sweep accounts.

Sweep account enables a bank to shift funds from transactions accounts to MMDAs or other accounts.

Are core deposits more interest elastic than volatile liabilities?

True

Does vault cash satisfy a banks liquidity needs?

Usually

What are measures of liability liquidity?

•Total equity to total assets; Loan to deposits •Loan losses to net loans; Reserve for loan losses to loans •Percentage composition of deposits; Total deposits to total assets; Core deposits to total assets •Federal funds purchased and RPs to total assets. •Commercial and other short-term borrowings to total assets.

What, when given a set of examples, is NOT considered a monetary policy tool of the Federal Reserve?

Anything but these... -Open market operations. Sale or purchase of U.S. government securities in the open market is Fed's most flexible means of carrying out policy objectives. •Discount window borrowing occurs when banks borrow directly from the Feds. Changes in the discount rate directly affect the cost of borrowing. •Changes in the reserve requirement impact the amount that banks can lend.

What are reasons that banks hold cash assets?

1. Meet customers' regular transaction needs. 2. Meet legal reserve requirements. 3. Assist in the check-payment system. 4. Purchase correspondent banking services.

How do banks and the Federal Reserve determine reserve amounts?

Deposit inflows raise legal reserve requirements and increase actual reserve assets and correspondent deposits. Deposit outflows do the opposite.

What is NOT considered a cash asset?

Inventory that a company has in stock

What is the best measure of a bank's asset liquidity?

Liquidity Risk

What is an indicator for potential deposits leaving a bank?

Potential Liquidity needs

There is often a trade-off between a banks liquidity and what?

Profitability

Do respondent banks buy services from correspondent banks?

Yes