CH07-Bank Relationship Management Flashcards
What can a bank do to offset the cost of federally mandated deposit insurance from the Federal Deposit Insurance Corporation (FDIC)?
Charge a fee but not list the agency name in the fee label
Earnings Credit formula
Earnings Credit = CB * (1 - RR) * (ECR * (D / 365))
CB = Average Collected Balance RR = Reserve Requirement ECR = Earnings Credit Rate D = Number of Days in the Month
Average Collected Balance calc=
CB= Average ledger balance - Average Deposit Float
The formula for collected balances (CB) is
CB = SC / [(ECR x D / 365) x (1 - RR)]
Where: SC = Service charges ECR = Earnings credit rate RR = Reserve requirement D = Number of days in the month
Note: Service charges are calculated as follows: unit service price x transaction volume
T/F: A favorable time to negotiate the ECR is during initial provider selection
True
US banks typically provide their corporate customers with imputed interest on demand deposit account (DDA) balances using earnings credit analysis (ECA) systems. The rate used to calculate this imputed interest is called the earnings credit rate (ECR) and is typically negotiable as part of the initial selection process.
Documents used to establish a relationship with a bank include:
- service agreemtns
- account resolutions
- signature cards
- credit agreements
- articles of incorporation
- contracts for depository accounts
What is the primary purpose of a relationship review and analysis template?
Comparability
A well-designed template requires that prices be specified in a common currency such as USD or Euros
T/F: There is no universally accepted international standard for bank identification codes and account number formats
TRUE
When preparing a RFP, what is the best approach to narrow a long list of vendors?
Keep adding criteria until the list is shorter
purpose of an Informal Review
Solicit vendors for potential solutions to existing problems.
- Used for Small projects
- Final outcome=change existing services
purpose of a RFI (Request for Info)
identify vendors that are willing and able to provide products and service.
- Used as a prelude to an RFP / RFQ
- Used for all sizes of projects
- Structured format
purpose of an RFQ (Request for Quote)
Solicit binding prices quotes from vendors.
- Used for COMMODITY PURCHASES of All Sizes
- Final outcome=PO
purpose of an RFP (Request for Proposal)
Solicit proposed solutions and pricing from selected vendors.
- Used for LARGE projects/purchases
- Final outcome=Contract negotiations and Implementation
RFP Project Steps
- Define objectives and project plan
- assemble team
- develop business reqs
- obtain trx/use data
- develop account/systems architecture
- vendor scan
- vendor long list
- RFP Format
- RFP Questions
- Issue RFP
- Review and score proposals and pricing
- Host vendor presentations
- Select Vendor
- Implement project
Define Sovereign Risk
Risk the gov’t may default on its debt
Define Political Risk
Broad term to describe a variety of actions a gov’t may take that negatively impacts the firm’s operations or value.
e.g. Nationalization or expropriated property (Gov’t takeover)
Define Nationalization
Gov’t takeover of a company (like oil industry)
3 forms of Political Risk
- Blocked currencies=can’t convert local currency to major trading currency
- Forced reinvestment=can’t transfer funds out of the country
- Required majority ownership=local ownership required
What is the focus of an SOC 1 Report?
FSPs operational risk and the design of control activities
FSP’s controls and the suitability of the design of the controls
What is the focus of an SOC 2 Report?
independent assessment of whether the controls were placed in operation, suitably designed, and operating effectively
Define UPBR (Uniform Bank Performance Report)
- primary publicly available tools for assessing the general financial risk of a US bank
- analytical tool created for supervisory, examination, and management purposes
- shows the impact of management decisions and economic conditions on a bank’s performance and balance sheet composition
Define CAMELS rating
an international rating system used by regulatory banking authorities to rate financial institutions
C-Capital adequacy A-Asset quality M-Management E-Earnings L-Liquidity S-Sensitivity
Define Account Analysis Transaction Set 822
EDI Analysis
