ch 12 banking

13. The minimum Tier 1 capital for this bank is: (table)

a. $348

A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 35%. Assets are expected to grow at 5%. 26. What is the required ROA to support the growth in assets?

a. 0.62%

6. Under the current capital requirements, assets in Category 2, such as repurchase agreements, have an effective total capital-to-total-assets ratio of:

a. 1.6%.

A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 35%. Assets are expected to grow at 5%. 27. If the bank expects its ROA to be .45%, what is the maximum dividend payout ratio to support the increase in assets?

a. 11.1%

18. To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

a. 4%, 8%, and 3%, respectively.

25. Approximately what percentage of commercial banks were currently considered well capitalized at the end of 2007?

a. 94%

33. For a bank with deficient capital ratios, which of the following actions could be taken to increase the capital ratios, holding everything else the same?

a. Cut the bank's dividend payment.

20. How does bank capital reduce bank risk?

a. It provides a cushion for firms to absorb losses.

1. Banks with greater capital can do all of the following except:

a. borrow at lower rates. b. make larger loans. c. expand faster through acquisitions. d. expand faster through internal growth e. Banks with greater capital can do all of the above. E

12. The tangible common equity (TCE) ratio for this bank is:

b. 4.04%

35. Which of the following is false regarding bank preferred stock?

b. All preferred stock investors pay taxes on only 20% of dividends.

21. Why do regulators prefer higher capital requirements?

b. It better protects the deposit insurance fund.

A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 35%. Assets are expected to grow at 5%. 28. If the bank expects its ROA to be .45% and the bank does not wish to change its dividend payout ratio from 35%, how much new equity capital (as a percent of total assets) must the bank issue to support the growth in assets?

c. 0.1075%

7. Under the current capital requirements, assets in Category 3, such as 1-4 family real estate loans, have an effective total capital-to-total-assets ratio of:

c. 4.0%.

34. Which of the following is not a Category 1 (Risk Rate = 0%) balance sheet asset?

c. Cash items in the process of collection.

29. For banks that have insufficient capital, which of the following is not a typical operating strategy to achieve capital adequacy?

c. Increase the dollar amount of commercial loans outstanding

15. Which of the following is included in regulatory capital but not accounting capital? ¬

c. Subordinated debt

5. Which of the following was not part of the Basel Agreement?

c. The ownership of equity by banks was prohibited.

22. Why do banks generally prefer lower capital requirements?

c. To increase a bank's return on equity.

32. Which of the following is a hybrid form of equity that effectively pays dividends that are tax deductible and is considered Tier 1 capital?

c. Trust preferred stock

3. Which of the following is not part of Tier 1 or core capital?

c. cumulative perpetual preferred stock.

2. Prior to the Basel Agreement, capital requirements were established without regard to:

c. the size of the bank's assets.

11. How much Tier 2 capital does the bank have?(table)

d. $800

17. To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

d. 6%, 10%, and 5%, respectively.

16. When the final Basel III rules are implemented in 2019, the minimum Tier 1 capital/risk-weighted assets percentage will be:

d. 8.5%

23. How do capital requirements constrain bank growth?

d. By limiting the amount of new assets that a bank can acquire through debt financing.

30. Which of the following is true regarding subordinated debt?

d. Interest payments on subordinated debt are tax-deductible.

24. Which of the following is not a weakness of risk-based capital standards?

d. They ignore credit risk.

8. Under current capital requirements, Tier 1 Capital takes of all of the following into account except:

d. allowance for loan and lease losses.

14. The minimum total capital for this bank is: (table)

e. $696

10. How much Tier 1 capital does the bank have? (table)

e. $950

31. Which of the following is not true regarding common stock?

e. Dividends are considered a fixed charge that must be paid.

19. A bank that does not meet the minimum levels for Tier 1 capital, total capital, and leverage capital ratios is classified as:

e. critically undercapitalized.

9. Tier 2 capital consists of all of the following except:

e. equity in subsidiaries.

4. Supplementary or Tier 2 capital does not include:

e. noncumulative perpetual preferred stock