Commercial Banks

Question 1

Approximately what was the value of m1 in 9/14?

Answer 1

2.8 trillion to be exact excluding sweep accounts

Question 2

Average leverage ratio amongst banks since 08? (Assets to NW)

Answer 2

14.7:1 in 09, 9:1 in 9/14, reflecting diminishing appetites for risk

Question 3

Components of M1?

Answer 3

Currency + Checkable deposits (NOW accounts, demand deposits, passbook savings deposits, sweep accounts, MMDAs)

Question 4

Define the Federal Funds Rate

Answer 4

Rate at which banks can lend and borrow federal funds from each other to satisfy the reserve requirement

Question 5

As of 9/14, sweep accounts constituted ____ of total M1

Answer 5

33%

Question 6

Examples of checkable deposits?

Answer 6

NOW accounts, demand deposits, sweep accounts

Question 7

Explain the significance of the DIDMCA Act of 1980

Answer 7

Standardised reserve requirements for all banks: 0-3% on the first 46.8 million worth of deposits, 8-12% on the rest in excess of 46.8 million. Bracket continually keeps up with deposits by increase by 80% of the total growth rate of deposits.

Question 8

Explain the significance of the Garn St Germain Act.

Answer 8

Introduced an exemption for the first several million deposits. Continually adjusted on an upward basis. Also introduced the MMDA to compete with MMMFs.

Question 9

Historical trend of the Prime Rate?

Answer 9

3 month treasury note yield + 3%

Question 10

How has the net worth to assets ratio changed since 08?

Answer 10

6.8% in 12/02. 11.1% in 9/14

Question 11

List the functions of the reserve requirement set by the Fed

Answer 11

To prevent overleveraging and a subsequent painful deleveraging process in the event of a crisis, to control the money supply, to tax banks, to ensure liquidity in times of liquidity crises

Question 12

M1 composition as of 9/14?

Answer 12

43% in circulation as currency, 56.9 as demand deposits and other checkable deposits, 2.8 trillion in total

Question 13

Name the rate at which banks can borrow from the Fed

Answer 13

The discount rate/ discount window

Question 14

Name two relatively new forms of bank deposits

Answer 14

MMDAs and Certificates of Deposit

Question 15

What percentage of bank assets are in loans?

Answer 15

As of 9/14, 52.4% (around 50 %)

Question 16

What percentage of bank assets are in securities?

Answer 16

20.2% as of 9/14

Question 17

What portion of the 52.4% is taken up by commercial and industrial loans?

Answer 17

Around 20%, 21.6% as of 9/14

Question 18

Of real estate loans?

Answer 18

48.6% (largest category) in the form of mortgages

Question 19

Of non real-estate personal loans?

Answer 19

17%

Question 20

Of the 20.2%, what percentage is in Mortgage-backed securities?

Answer 20

53.5%

Question 21

What percentage is in government debt securities?

Answer 21

11.6% as of 9/14

Question 22

What percentage is in government agency bonds?

Answer 22

6.3% of all securities as of 9/14

Question 23

What percentage is in muni bonds?

Answer 23

10.3%

Question 24

What percentage of all bank assets are in equity securities?

Answer 24

0.3%

Question 25

What is the value of FDIC insured deposits per depositor nowadays?

Answer 25

250,000 per depositor, up from 100,000. FDIC compensated via fees on 1/12% of all insured deposits

Question 26

What is the difference between MZM and M2?

Answer 26

M2 only includes retail MMMFs, whereas MZM includes both retail and institutional MMMFs.

Question 27

What is a sweep account?

Answer 27

A combined account consisting of either a typical M1 component i.e a demand deposit or NOW account with a Money Market Mutual Fund. Used between banks either to clear debts accrued from ATM withdrawals from each other’s customers or for customers to earn an interest on their deposits

Question 28

State the balance sheet identity

Answer 28

A= L + NW

Question 29

Why is NW sometimes overstated?

Answer 29

Because potential liabilities arising from asset writedowns are factored into a firm’s net worth prior to the writedowns themselves. Therefore, NW may appear to be larger than it actually is.

Question 30

What is a repo?

Answer 30

A form of collateralised loan agreement, usually between two banks or a bank and the Fed. For repos conducted between banks, the loan is usually overnight or extremely short term, and the collateral used is almost always a high quality, stable security such as a treasury note.

Question 31

Historical trend of the Fed Funds Rate?

Answer 31

Slightly higher than the yield on a three month T-note, since returns on loans based on the rate are taxable.