Deck 11: Commercial Banks: Industry Overview

Question 1

Bank assets tend to have _____________ maturities and _____________ liquidity than/as bank liabilities.

A)longer; greater
B)longer; lower
C)shorter; greater
D)shorter; lower
E)equal; equal

Answer 1

B

Question 2

Nontransaction deposits at banks include NOW accounts and demand deposits.

Answer 2

False

Question 3

State chartered banks ________________ be members of the Federal Reserve System and nationally chartered banks ________________ be members of the Federal Reserve System.

A)must; may
B)must; must
C)may; must
D)may; may

Answer 3

C

Question 4

The largest single category of loans on the typical bank's balance sheet in 2013 was

A)U.S. government securities.
B)commercial and industrial loans.
C)consumer loans.
D)real estate loans.
E)interbank loans.

Question 5

Since 1980,the number of banks in the United States has been increasing dramatically due to deregulation of the industry.

Question 6

Most of the changes in size,structure,and composition of the banking industry in recent years are due to

A)bank failures.
B)increasing regulations.
C)new charters granted.
D)declines in the number of branch offices.
E)mergers and acquisitions.

Question 7

Business loans have dropped in importance since 1987 as measured by the proportion of these loans on the bank balance sheet.

Question 8

Small banks control about 70 percent of banking industry assets.

Question 9

The majority of banks are nationally chartered and insured by the FDIC.

Question 10

Equity capital at commercial banks in 2013 comprised about ____________ of liabilities and equity.

A)25 percent
B)21 percent
C)55 percent
D)11 percent
E)5 percent

Question 11

Nationally chartered banks receive chartering and merger approval from the

A)Federal Deposit Insurance Corporation.
B)Office of Comptroller of the Currency.
C)Federal Reserve System.
D)Office of Thrift Supervision.
E)Any of the options may grant a charter and approve a merger.

Question 12

About __________________ of federally insured banks are nationally chartered and about __________________ of federally insured banks are members of the Federal Reserve.

A)77 percent; 65 percent
B)65 percent; 77 percent
C)34 percent; 22 percent
D)20 percent; 34 percent
E)40 percent; 60 percent

Question 13

Loans comprise the single largest asset category for a bank.

Question 14

Which of the following could result in a negative NIM?

A)Growth in net interest income
B)Lower non-interest expense
C)Decline in net interest income
D)Higher non-interest income
E)Positive net interest spread

Question 15

In comparison to small banks,larger banks typically have

A)more equity capital.
B)more core deposits.
C)more off-balance-sheet activities.
D)larger net interest margins.
E)all of the options.

Question 16

In 2010,the notional value of bank off-balance-sheet activities was greater than bank industry assets.

Question 17

In terms of profitability,a well-run bank usually has an ROA of

A)0.5-3 percent.
B)3-5 percent.
C)5-10 percent.
D)10-15 percent.
E)15-20 percent.

Question 18

On average,bank liabilities tend to have shorter maturities and greater liquidity than bank assets.

Question 19

Banking may be subdivided into at least three categories of banks. Match the definitions with the appropriate name. I. A bank that specializes in retail or consumer banking in a local market
II) A bank that engages in a complete array of wholesale commercial banking activities and usually also provides retail banking services
III) A bank that is located in a financial center and relies on nondeposit or borrowed sources of funds for a significant portion of its liabilities

A)money center bank; community bank; super-regional bank
B)community bank; money center bank; super-regional bank
C)super-regional bank; money center bank; community bank
D)money center bank; super-regional bank; community bank
E)community bank; super-regional bank; money center bank

Question 20

Banks have an average total debt ratio of about 90 percent.

Question 21

Most non-financial firms would never hold as much of their assets in safe liquid securities as banks do. Why do banks maintain such a high percentage of investment in securities?

Question 22

What are the major advantages a bank gains by expanding into international bank services?
What are three disadvantages of international expansion?

Question 23

Advantages of going global for U.S. banks include all but which one of the following?

A)Diversification of earnings
B)Greater opportunities to exploit economies of scale
C)Greater sources of funds
D)Conducting business in less regulated environments
E)Low fixed costs involved in international expansion

Question 24

A contingent item that may eventually be placed on the right-hand side of the balance sheet or expensed on the income statement is a(n)

A)loan commitment.
B)off-balance-sheet liability.
C)off-balance-sheet asset.
D)net charge-off.
E)loan sold without recourse.

Question 25

Why are banks different from other depository institutions?

Question 26

Loans past due 90 days or more and loans that are not accruing interest because of problems of the borrower are called

A)loan losses.
B)net charge-offs.
C)provisional loans.
D)noncurrent loans.
E)contra loans.

Question 27

An ILC is a type of

A)finance company.
B)thrift institution.
C)credit card bank.
D)nonbank bank.
E)foreign-owned loan corporation.

Question 28

Which of the following is the primary regulator of bank holding company activities?

A)Federal Bank Holding Company Board
B)FDIC
C)Federal Reserve
D)State regulatory agency in the chartering states
E)U.S. Treasury

Question 29

Commercial banks are the __________________ financial intermediary in the United States as measured by asset size.

A)largest
B)second-largest
C)third-largest
D)fourth-largest
E)fifth-largest

Question 30

A bank has an interest rate spread of 150 basis points on $30 million in earning assets funded by interest-bearing liabilities. However,the interest rate on its assets is fixed and the interest rate on its liabilities is variable. If all interest rates go up 50 basis points,the bank's new pretax net interest income will be __________.

A)$600,000
B)$450,000
C)$300,000
D)$250,000
E)$175,000

Question 31

The ROA for financial institutions such as banks is typically quite low as compared to nonfinancial firms. Why?
With such a low ROA,how can banks attract stockholders?

Question 32

Why are loans such a high percentage of total assets at the typical bank?
What four broad classes of loans do banks engage in?

Question 33

Reasons behind the drop in bank profitability in the second half of the previous decade include
I) flattening of the yield curve.
II) increase in competitive pressures on asset pricing.
III) increases in foreclosures in the mortgage market.
IV) increases in net interest margin.

A)I only
B)II and III only
C)I,II,and III only
D)II,III,and IV only
E)III and IV only

Question 34

The provision of banking services to other banks,such as check clearing,foreign exchange trading,and so forth,is an example of

A)correspondent banking.
B)trust services.
C)off-balance-sheet assets.
D)economies of scope.
E)credit derivatives.

Question 35

Discuss the major differences between large banks and small banks. Which have had higher ROAs?
Why?

Question 36

What are the major sources of funds for banks?
Provide a breakdown of all the major sources of funds at a bank and briefly describe the different types of deposits/non-deposit sources.

Question 37

A contingent promise by a bank to pay a bill when it comes due if the bill's originator fails to pay is an example of a

A)swap agreement.
B)standby letters of credit.
C)forward contract.
D)loan commitment.
E)commitment to buy foreign exchange.

Question 38

Banks differ from other types of depository institutions in that
I) banks have more diversified asset portfolios.
II) banks obtain funds from more different types of sources.
III) the average size bank is larger than other depository institutions.

A)I only
B)I and II only
C)I and III only
D)II and III only
E)I,II,and III

Question 39

A bank is earning 6 percent on its $150 million in earning assets and is paying 4.75 percent on its liabilities. The bank's interest rate spread is __________.

A)6.00 percent
B)4.75 percent
C)1.25 percent
D)10.75 percent
E)1.26 percent

Question 40

Why did bank profitability decline beginning in late 2006 and through 2008?