Exam 2

Question 1

Asset Transformation

Answer 1

Taking short-term deposits and making long-term loans

Question 1

Non-Transaction Deposits

Answer 1

Money markets and CDs

Question 2

Liquidity Management

Answer 2

Banks must keep a certain fraction of deposits as required reserves

Question 3

3 Drivers of Bank Capital Levels

Answer 3

Bank failure prevention, return on equity, regulatory requirement

Question 4

Actions to increase ROE

Answer 4

Buy back stock, pay out higher dividends, acquire new funds but keep capital constant

Question 5

Actions if capital is insufficent

Answer 5

Issue equity, reduce dividend payout, reduce assets

Question 6

Asset Management

Answer 6

Seek highest possible return on all assets subject to minimizing risks while making adequate provisions for ample liquidity

Question 7

Contagion Effect

Answer 7

One bank run can lead to a run on another

Question 8

Payoff Method

Answer 8

Banks are allowed to fail, depositors receive up to $250k in deposits

Question 9

Purchase & Assumption Method

Answer 9

100% insured and uninsured payout

Question 10

Three Components of Thrift Banking System

Answer 10

Savings & Loans, Mutual Savings, Credit Unions

Question 11

National Banking Act of 1863

Answer 11

Dual banking system of state and mutual banks operating side by side

Question 12

Federal Reserve Act of 1913

Answer 12

Created Federal Reserve System

Question 13

McFadden Act of 1927

Answer 13

Gave individual states the authority to govern bank branches located within the state

Question 14

Glass-Steagall Act of 1933

Answer 14

Created FDIC, separated banking and securities industries

Question 15

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994

Answer 15

Overturned McFadden Act, allowed interstate banking and branching

Question 16

International Banking Act of 1978

Answer 16

Put foreign and domestic banks on equal operating footing by eroding foreign bank advantages

Question 17

Gramm-Leach-Bliley Act of 1999

Answer 17

Repealed Glass-Steagall, gave rise to full service commercial banks

Question 18

Dodd-Frank Act of 2010

Answer 18

Consumer protection, annual stress tests, resolution authority, regulatory oversight

Question 19

Volcker Rules

Answer 19

Require routine derivatives to be cleared through central clearinghouses and exchanges

Question 20

Securitization

Answer 20

Transforming illiquid financial assets into marketable securities

Question 21

Sweep Accounts

Answer 21

Earn interest on deposits by offshoring to other countries overnight and getting funds back in morning

Question 22

Regulatory Agency for National Banks

Answer 22

Comptroller of the Currency

Question 23

Regulatory Agency for Bank Holding Companies

Answer 23

Federal Reserve System

Question 24

Regulatory Agency for Federally Chartered Savings and Loans Associations

Answer 24

Office of Thrift Supervision

Question 25

Three Phases of Financial Crisis

Answer 25

Initial, banking crisis, debt deflation

Question 26

Four Balance Sheet Concerns

Answer 26

Liquidity, Capital Adequacy Risk Management, Asset Management Risk, Credit Risk Management

Question 27

Attempts to Standardize International Banking Practices

Answer 27

Basel Accord III

Question 28

Negotiable CDs

Answer 28

Traded in secondary markets after primary issuance

Question 29

Methods of Interest Rate Risk

Answer 29

Gap analysis, duration analysis

Question 30

Originate-To-Distribute

Answer 30

Originator of a loan sells to various third parties

Question 31

Elements of Dual Banking System

Answer 31

National, State

Question 32

Elements of Shadow Banking

Answer 32

Originators, bundlers, servicers, distributors