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Financial Markets and Institutions Final > Commercial Banks > Flashcards

Commercial Banks Flashcards

1
Q

_________ are the largest group of financial institutions in terms of total assets

A

Commercial banks

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2
Q

Major liabilities are federally insured deposits—thus, they are considered ______________

A

depository institutions

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3
Q

Commercial banks perform what services essential to U.S. financial markets?

A
  • Play a key role in the transmission of monetary policy
  • Provide payment services
  • Provide maturity intermediation
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4
Q

Banks are ________ to protect against disruptions to the services they perform

A

regulated

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5
Q

_____ generate the most revenue for banks

A

Loans

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6
Q

Commercial and industrial loans are declining because of nonbank substitutes such as _____________

A

commercial paper

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7
Q

Mortgages are __________ in importance

A

increasing

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8
Q

____________ generate revenue and provide banks with liquidity

A

Investment securities

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9
Q

_________ are held to meet reserve requirements and to provide liquidity

A

Cash assets

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10
Q

Commercial banks face what unique risks because of their asset structure?

A

Credit, liquidity, and interest rate risk

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11
Q

___________ is the risk that loans are not repaid

A

Credit (default) risk

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12
Q

__________ is the risk that depositors will demand more cash than banks can immediately provide

A

Liquidity risk

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13
Q

___________ is the risk that interest rate changes erode net worth

A

Interest rate risk

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14
Q

Credit, liquidity, and interest rate risk all contribute to a commercial bank’s level of ____________

A

insolvency risk

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15
Q

The four main categories of assets are ___________

A

Cash, Investments, Loans & Other Assets

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16
Q

Total loans ____ as a result of the financial crisis

A

fell

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17
Q

Safe investments and cash ____ as a result of the financial crisis

A

rose

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18
Q

Real Estate loans are about ___ of loans

A

58%

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19
Q

___________ are the sum of noninterest-bearing demand deposits and interest-bearing checking accounts

A

Transaction accounts

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20
Q

_______________ are called negotiable order of withdrawal (NOW) accounts

A

Interest-bearing deposit accounts

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21
Q

___________________ have been declining in recent years because of MMMFs

A

Household (retail) savings and time deposits

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22
Q

______________ are fixed-maturity interest-bearing deposits with face values of $100,000 or more that can be resold in the secondary market

A

Negotiable CDs

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23
Q

Three examples of non-deposit liabilities:

A

Fed funds purchased, repos, and notes and bonds

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24
Q

Minimum levels of ___________ are required by regulators to act as a buffer against losses

A

equity capital

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25
Q

_________ are the main source of funds

A

Deposits

26
Q

Equity has increased since the financial crisis and is now over ___ of assets

A

11%

27
Q

_______________ engage in many fee-related activities that are conducted off the balance sheet

A

Commercial banks

28
Q

When an event occurs, this item moves onto the asset side of the balance sheet or income is realized on the income statement

A

Off-balance-sheet assets

29
Q

When an event occurs, this item moves onto the liability side of the balance sheet or an expense is realized on the income statement

A

Off-balance-sheet liabilities

30
Q

The ________________ allowed nationwide branch networks to evolve

A

Reigle-Neal Act of 1994

31
Q

The _______________ gave commercial banks the full authority to enter the investment banking and insurance business

A

Financial Services Modernization Act of 1999

32
Q

______________ are considered “non-bank” banks

A

Industrial loan corporations (ILCs)

33
Q

A ___________ is a merger of commercial banks with assets of $1 billion or more

A

megamerger

34
Q

____________ refer to the degree to which a firm’s average unit costs of producing financial services fall as its output of services increase

A

Economies of scale

35
Q

_______________ occur when the costs of joint production of FI services are higher than they would be if they were produced independently

A

Diseconomies of scale

36
Q

________________ refer to the degree to which a firm can generate cost synergies by producing multiple financial service products

A

Economies of scope

37
Q

_____________ refer to cost savings due to greater managerial efficiency

A

X-efficiencies

38
Q

Retail banking is

A

consumer-oriented

39
Q

Residential and consumer loans are funded by accepting

A

small deposits

40
Q

______________ specialize in retail banking

A

Community banks

41
Q

Wholesale banking is ________________

A

business-oriented

42
Q

Commercial and industrial loans are often funded with _____________

A

purchased funds

43
Q

_______________ engage in a complete array of wholesale banking activities

A

Regional or superregional banks

44
Q

Examples of retail banking services are

A
  • Automated teller machines (ATMs)
  • Point-of-sale (POS) debit cards
  • Preauthorized debits and credits
  • Paying bills via telephone
  • Online banking
  • Smart cards (stored-value) cards
  • Internet banking
45
Q

Examples of wholesale banking services are

A
  • Controlled disbursement accounts
  • Account reconciliation
  • Lockbox services
  • Electronic lockbox
  • Funds concentration
  • Electronic funds transfer
  • Check deposit services
  • Electronic initiation of letters of credit
  • Treasury management software
  • Electronic data interchange
  • Facilitating business-to-business e-commerce
  • Electronic billing
  • Verifying identities
  • Assisting small business entries in e-commerce
46
Q

Because larger banks generally lend to larger corporations, with more funding options larger banks often are required to have ________________________ than those of smaller banks

A

lower interest rate spreads and net interest margins

47
Q

Large banks tend to pay ___________ than small banks

A

higher salaries and invest more in buildings and premises

48
Q

Large banks tend to _______ their operations more and generate more noninterest income than small banks

A

diversify

49
Q

__________ is the difference between lending and deposit rates

A

Interest rate spread

50
Q

___________ is interest income minus interest expense divided by earning assets

A

Net interest margin

51
Q

____________ is non-interest income minus non-interest expense divided by earning assets

A

Net non-interest margin

52
Q

____________ is percent of loans written-off as uncollectable

A

Net Charge-Offs

53
Q

___________ is net income divided by assets

A

Return on assets

54
Q

___________ is net income divided equity

A

Return on equity

55
Q

Commercial banks performance measures

A
  • Interest rate spread
  • Net interest margin
  • Net non-interest margin
  • Net Charge-Offs
  • Return on assets
  • Return on equity
56
Q

The___________ insures the deposits of commercial banks

A

Federal Deposit Insurance Corporation (FDIC)

57
Q

The U.S. has a ___________—banks can be either nationally or state-chartered

A

dual banking system

58
Q

The ______________ charters and regulates national banks

A

Office of the Comptroller of the Currency (OCC)

59
Q

The ____________ has regulatory power over nationally chartered banks and their holding companies and state banks that opt in to the Federal Reserve System

A

Federal Reserve System (FRS)

60
Q

A _____________ is a parent company that owns a controlling interest in a subsidiary bank or other financial institution

A

holding company

61
Q

Advantages of international expansion:

A
  • Risk diversification
  • Economies of scale
  • Distribute new product innovations internationally
  • Opportunity to find the cheapest and most available sources of funds
  • Service the needs of domestic multinational corporations
  • Regulatory avoidance
62
Q

Disadvantages of international expansion:

A
  • Information and monitoring costs are generally higher in foreign markets
  • Foreign assets may be subject to nationalization or expropriation by host country governments
  • The fixed costs of establishing foreign organizations may be extremely high

Financial Markets and Institutions Final (1 decks)

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