Deck 13: Commercial Bank Operations

Question 1

The number of banks in the US has significantly increased over the last 30 years while the number of branches has decreased.

Answer 1

False

Question 2

Loan pricing is designed to provide a competitive rate of return on bank shareholder's equity after accounting for loan rules and risk.

Answer 2

True

Question 3

Eurodollars are dollar denominated deposits owned by foreigners.

Answer 3

False

Question 4

Matched-funding loan pricing is a means to limit interest rate risk.

Question 5

Fed Funds sold represent an important source of borrowed funds for commercial banks.

Question 6

Credit scoring was outlawed as discriminatory by the Dodd Frank Act.

Question 7

Debentures are a non-deposit liability of banks.

Question 8

A bank holding company might apply for a "financial" holding company status from the Fed if it were planning to purchase a life insurance company.

Question 9

If interest rates are expected to decrease in the future, banks would prefer to make floating-rate loans rather than fixed rate loans.

Question 10

Recently, small banks have held a higher percentage of assets in real estate lending than large banks.

Question 11

A bank's investment account provides liquidity and income to the bank.

Question 12

Demand deposits represent the largest deposit source of funds for commercial banks.

Question 13

Deposits are a larger percent of funding for small banks, compared to large banks.

Question 14

A sale of Fed Funds by a bank most likely represents a decrease in its excess reserves.

Question 15

Banks usually pay low explicit interest rates on demand deposit accounts.

Question 16

Banks operate under the same regulatory structure as any other financial services firms.

Question 17

Most banks issue negotiable certificates of deposits.

Question 18

Fed Funds purchased is an important short-term asset for large banks.

Question 19

"Off-balance-sheet" activities do not count toward bank capital requirements.

Question 20

The prime rate is the lowest loan rate offered by banks.

Question 21

What are the major economic differences between bank loans and investments? Aren't both intended to generate profits?

Question 22

Why is the ROA for commercial banks typically quite low as compared to non-financial firms? Given such a low ROA, how can commercial banks attract stockholders?

Question 23

Why has the bank holding company form of organization been so popular?

Question 24

Why can banks operate with so much more leverage (so much less equity capital) than ordinary businesses?

Question 25

What are the major economic differences between deposits and borrowed funds? Aren't both intended to finance loans and investments cost-effectively?

Question 26

Why do banks engage in securitization? What are the advantages of securitization?

Question 27

Since the 1990's both the number and size of commercial banks in the U.S. has been increasing dramatically.

Question 28

How do regulations "tax" bank assets and liabilities?