Test 3-Chapter 17: Commercial Banking

Question 1

What is the role of banks?

Answer 1

to efficiently move capital between surplus and deficit units
If this is done right, risk is reduced and growth maximized

Question 2

Systematically Important Financial Information (SIFI), what qualifies a bank to be apart of this?

Answer 2

greater than $50 billion in assets

Question 3

Non-banks (hedge funds, securities firms) offer products (loans, derivatives) outside of government regulation, which includes banks conducting unregulated financial activiites

Answer 3

shadow-banks

Question 4

Bank market concentration:

Answer 4

industry is dominated by fewer but larger banks, top 5 are labeled this due to the assets they hold

Question 5

Evolution in Banking:
____________ among banks increased
banks needed to become more _______
________ allowed quick growth

Answer 5

competition
efficient
acquisitions

Question 6

what are banks sources of funds?

Answer 6

deposits, federal funds purchased, borrowing form fed at discount rate in discount window, repos, Eurodollar borrowing, and bonds issued by bank

Question 7

What are bank uses of funds?

Answer 7

cash, loans, investment in securities, repos, Eurodollar loans, fixed assets, fed funds sol

Question 8

The main use of funds and the main source of funds are what?

Answer 8

use-loans, and sources-deposits

Question 9

Bank created contingent asset or liability. Generates fee income without funding; appears in footnotes to financial statements. Adds to complexity of interpreting risk of bank.

Answer 9

off-balance sheet activities

Question 10

Contractual obligation for future loan, charging fee for loan commitment

Answer 10

loan commitment

Question 11

bank promise to pay if customer fails to pay. Bank is payer of last resort. Fees range 1-8% of amount.

Companies will use this if they don’t know if who they’re going to sell to is going to actually going to pay for products, so the banks come in to promise you’ll get paid, but you pay for the service

Answer 11

standby letters of credit

Question 12

What are the four off-balance sheet activities?

Answer 12

loan commitments, standby letters of credit, swap intermediary, and other instruments (futures, forwards, options, swaps)

Question 13

What does this describe:
new growth
diversification
serve MNC's
fund source
regulatory avoidance for big banks

Answer 13

international banking

Question 14

_____ risk, risk of loans, securities, and investments. Banks tend to take on more risk to earn a higher return.

Answer 14

default

Question 15

__________ risk: insufficient cash to meet needs, increase deposits, sell assets

Answer 15

liquidity

Question 16

_________ ____ risk: rate sensitivity, impact of rate changes on bank revenues and expenses

Answer 16

interest rate risk

Question 17

Have bank failures increased or decreased since 2009?

Answer 17

decreased

Question 18

What are some profitability measures banks use?

Answer 18

NIM, Return of equity= net profit after tax/equity, return on assets=net profit after tax/assets