CH07-Bank Relationship Management

Question 1

What can a bank do to offset the cost of federally mandated deposit insurance from the Federal Deposit Insurance Corporation (FDIC)?

Answer 1

Charge a fee but not list the agency name in the fee label

Question 2

Earnings Credit formula

Answer 2

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

Question 3

Average Collected Balance calc=

Answer 3

CB= Average ledger balance - Average Deposit Float

Question 4

The formula for collected balances (CB) is

Answer 4

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

Question 5

T/F: A favorable time to negotiate the ECR is during initial provider selection

Answer 5

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.

Question 6

Documents used to establish a relationship with a bank include:

Answer 6

• service agreemtns
• account resolutions
• signature cards
• credit agreements
• articles of incorporation
• contracts for depository accounts

Question 7

What is the primary purpose of a relationship review and analysis template?

Answer 7

Comparability

A well-designed template requires that prices be specified in a common currency such as USD or Euros

Question 8

T/F: There is no universally accepted international standard for bank identification codes and account number formats

Answer 8

TRUE

Question 9

When preparing a RFP, what is the best approach to narrow a long list of vendors?

Answer 9

Keep adding criteria until the list is shorter

Question 10

purpose of an Informal Review

Answer 10

Solicit vendors for potential solutions to existing problems.

• Used for Small projects
• Final outcome=change existing services

Question 11

purpose of a RFI (Request for Info)

Answer 11

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

Question 12

purpose of an RFQ (Request for Quote)

Answer 12

Solicit binding prices quotes from vendors.

• Used for COMMODITY PURCHASES of All Sizes
• Final outcome=PO

Question 13

purpose of an RFP (Request for Proposal)

Answer 13

Solicit proposed solutions and pricing from selected vendors.

• Used for LARGE projects/purchases
• Final outcome=Contract negotiations and Implementation

Question 14

RFP Project Steps

Answer 14

1. Define objectives and project plan
2. assemble team
3. develop business reqs
4. obtain trx/use data
5. develop account/systems architecture
6. vendor scan
7. vendor long list
8. RFP Format
9. RFP Questions
10. Issue RFP
11. Review and score proposals and pricing
12. Host vendor presentations
13. Select Vendor
14. Implement project

Question 15

Define Sovereign Risk

Answer 15

Risk the gov’t may default on its debt

Question 16

Define Political Risk

Answer 16

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)

Question 17

Define Nationalization

Answer 17

Gov’t takeover of a company (like oil industry)

Question 18

3 forms of Political Risk

Answer 18

1. Blocked currencies=can’t convert local currency to major trading currency
2. Forced reinvestment=can’t transfer funds out of the country
3. Required majority ownership=local ownership required

Question 19

What is the focus of an SOC 1 Report?

Answer 19

FSPs operational risk and the design of control activities

FSP’s controls and the suitability of the design of the controls

Question 20

What is the focus of an SOC 2 Report?

Answer 20

independent assessment of whether the controls were placed in operation, suitably designed, and operating effectively

Question 21

Define UPBR (Uniform Bank Performance Report)

Answer 21

• 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

Question 22

Define CAMELS rating

Answer 22

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

Question 23

Define Account Analysis Transaction Set 822

Answer 23

EDI Analysis