Chapter 12

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%. What is the required ROA to support the growth in assets?

.62%

Under the current capital requirements, asset in category 2, such as repurchase agreements, have an effective total capital to assets ratio of

1.6%

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 of the ratio

4.0%

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

4.04%

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

8.5%

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

94%

Under current capital requirements, tier 1 capital takes of all the following into account except

Allowance for loans and leases

How does capital acquire constrain bank growth

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

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

Can do all of the above ( borrow at lower rates, make larger loans, expand fast through acquisitions, expand faster through internal growth)

Which of the following is not category 1 (risk rate=0%) balance sheet

Cash items in the process of collection

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

Cumulative perpetual preferred stock

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?

Cut the bank's dividend payment

Which of the following is not true regarding common stock

Dividens are considered a fixed charge that must be paid

A bank that hold only us treasury securities is not require to hold any capital since all the assets are risk less

False

An adequately capitalized bank may obtain brokered deposits without FDIC approval

False

banks can circumvent capital requirement by moving assets off the books

False

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

Increase the dollar mount of commercial loans outstanding

Which of the following is true regarding subordinated debt

Interest payments on subordinated debt are tax deductible

Why do regulators prefer higher capital requirements

It better protects the deposit insurance fund

How does bank capital reduce bank risk

It provides cushion for firms to absorb losses

Supplementary or Tier 2 capital does not include

Noncumulative perpetual preferred stock

Which of the following is included in regulatory capital but not accounting capital

Subordinated debt

Why do banks generally prefer lower capital requirements

To increase a bank's return on equity

Regulatory capital ratios focus on the book value of equity

True

Smaller banks rely more heavily on internally generated capital than large banks

True

Under the current risk based capital requirements, banks must hold capital against standby letter of credit they have issued as guarantees

True

What constitutes Tier 2 capital varies substantial between countries

True

Tier 2 capital costs of all of the following except

equity in subsidiaries

Which of the following is not a weakness of risk based capital standards

they ignore credit risk