Question 1

According to Hitachi Data Systems,recovery time from system failures averages 12 hours.

Accepted Answer

According to Hitachi Data Systems, the recovery time from system failures averages 12 hours.

Question 2

In recent years,U.S.banks have alone spent $20 billion per year in technology related expenditures.

Accepted Answer

According to a report by Statista, U.S. banks spent $22.3 billion on technology related expenditures in 2019 alone.

Question 3

Bernie Madoff and his infamous Ponzi scheme is an example of external operational risk to the hedge funds he managed.

Accepted Answer

Bernie Madoff's Ponzi scheme is an example of internal operational risk because it was a fraudulent activity orchestrated from within his own company, not a risk that originated from outside the organization.

Question 4

As of the 2014,non-interest expense was approximately 10 times larger than interest expense for all FDIC insured banks.

Accepted Answer

This statement is true according to the FDIC's Quarterly Banking Profile for the fourth quarter of 2014. Non-interest expenses for all FDIC insured banks totaled $165.1 billion, while interest expenses totaled $16.9 billion, making non-interest expenses approximately 10 times larger.

Question 5

Investment in technology has allowed FIs to lower the amount of non-interest income as a percent of total operating income.

Accepted Answer

Investment in technology by Financial Institutions (FIs) primarily aims to enhance efficiency, reduce costs, and improve customer service, rather than directly lowering the amount of non-interest income as a percent of total operating income. Non-interest income includes fees and other charges that are not related to the interest earned on loans, and technology investments do not inherently reduce this income stream.

Question 6

The initial steps of cross selling financial products can easily occur with computer technology.

Accepted Answer

Computer technology can be used to track customer behavior and offer targeted recommendations for additional financial products, making the initial steps of cross selling more efficient and effective.

Question 7

Appropriate technology may allow an FI to achieve lower-cost funding.

Accepted Answer

Appropriate technology can help FIs reduce operational costs, which can in turn allow them to offer lower interest rates to borrowers and attract lower-cost funding from investors. For example, digital platforms for loan origination and repayment can reduce administrative costs and improve efficiency, while mobile banking can reduce the need for costly physical infrastructure.

Question 8

Wholesale cash management services allow corporate customers to minimize cash balances and to monitor quickly cash transactions and balances.

Accepted Answer

Wholesale cash management services are designed to help corporate customers optimize their cash management practices, which includes reducing the amount of cash held in reserve and providing real-time visibility into cash transactions and balances. This can help companies improve their cash flow, reduce the risk of fraud, and ultimately increase profitability.

Question 9

The "flash crash" on the NYSE in May 2010 was directly attributable to the manipulation of LIBOR by Barclays PLC.

Accepted Answer

The "flash crash" on the NYSE in May 2010 was not directly attributable to the manipulation of LIBOR by Barclays PLC. The crash was caused by a combination of high-frequency trading algorithms and market instability. While the LIBOR scandal did lead to fines and legal repercussions for Barclays and other banks, it was not the direct cause of the "flash crash."

Question 10

Cash management services include the collection,disbursement,and transfer of funds.

Accepted Answer

Cash management services involve managing the cash flow of a business and include the collection, disbursement, and transfer of funds.

Question 11

The Bank for International Settlements has stated that banks should carry extra capital as a cushion against operational risks.

Accepted Answer

The Bank for International Settlements has indeed stated that banks should carry extra capital as a cushion against operational risks. This is to ensure that banks are better equipped to handle unexpected losses and to avoid liquidity problems.

Question 12

Technological efficiency focuses exclusively on the cost side of financial intermediation.

Accepted Answer

Technological efficiency focuses on improving both the cost and quality of financial intermediation. It aims to maximize the use of technology to reduce costs, improve operations, and enhance customer experience.

Question 13

Controlled disbursement accounts are designed to reduce the delay in check clearing.

Accepted Answer

Controlled disbursement accounts are designed to provide companies with same-day notification of the total amount of checks that will clear against their account, allowing them to manage their cash flow more effectively, not to reduce the delay in check clearing.

Question 14

The U.S.Treasury has recently proposed that banks carry a capital cushion against losses resulting from operational risk.

Accepted Answer

The answer of The U.S.Treasury has recently proposed that banks...

Question 15

Retail banking services and products in recent years have moved strongly toward electronic payment technology.

Accepted Answer

The statement correctly states that retail banking services and products have shifted towards electronic payment technology.

Question 16

Noninterest expense has increased faster than interest expense for all U.S.insured commercial banks in recent years.

Accepted Answer

This is true according to data reported by the Federal Deposit Insurance Corporation (FDIC) between 2016-2020. Noninterest expenses, such as salaries, marketing, and technology costs, have increased at a faster rate than interest expenses, such as the cost to borrow funds or pay interest on deposits, for U.S. insured commercial banks.

Question 17

Investing in appropriate technology allows an FI to access lower-cost funding markets.

Accepted Answer

By investing in appropriate technology, an FI can improve its efficiency and risk management capabilities, which can improve its creditworthiness and access to lower-cost funding markets.

Question 18

Although secure communications can be carried out between an FI and their customers in dedicated message centers,the centers have yet to replace e-mail communications as the primary means of customer contact.

Accepted Answer

The answer of Although secure communications can be carried out...

Question 19

Account reconciliation redirects funds from accounts in a large number of different banks to a few centralized accounts at one bank.

Accepted Answer

Account reconciliation is a process used by companies to ensure that their financial records (bank statements, for example) are accurate and consistent with their internal records, not for redirecting funds between banks.

Question 20

Two important input factors in financial intermediation are capital and labor.

Accepted Answer

Capital and labor are both important input factors in financial intermediation as they help to provide the necessary resources and expertise for financial institutions to perform their functions effectively. Capital provides the necessary funds for lending and investing activities, while labor provides the skilled workforce necessary to manage and operate these activities.

Quiz 17: Technology and Other Operational Risks