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Bus 206 final
Bus 206 Final: chapter 18
| Question | Answer |
|---|---|
| What is the US banking system referred to as? | a duel banking system because of its federal and state regulations |
| a bank that obtains a state charter | state charter |
| a bank that obtains a federal charter | national bank |
| what banks are required to be a part of the Fed? | national banks |
| who regulates national banks? | the Comptroller of currency |
| who regulates state banks? | their state agency |
| who is regulated by the FDIC? | all banks insured by the federal deposit insurance corporation |
| do banks insured by the FDIC pay annual insurance premiums? | yes |
| what did the Depository Institutions Deregulation and Monetary Control Act do? | deregulate banks and removed interest rate ceilings on deposits |
| what did the garn-st. germain act do? | allowed depository institutions to offer money market deposit accounts; allowed them to acquire failing institutions across the US |
| what did the interstate banking act do? | it removed interstate branching restrictions which increased competition for deposit |
| what is the significance of nationwide interstate banking? | it enabled banks to grow and achieve economies of scale |
| loans in which the borrower's liabilities are valued at more than 75% of total assets | highly leveraged transactions |
| who monitors highly leveraged transactions? | bank regulators |
| what is the maximum percentage banks can give to a single borrower? | banks are restricted to a maximum loan amount of 15% of their capital to any single borrower |
| what did the community reinvestment act do? | it requires banks to meet the credit needs of qualified borrowers in their community, even those with lower incomes |
| what cant banks use to purchase common stock? | borrowed or deposited funds |
| what type of bonds can banks invest in? | bonds that are Baa or higher by Moody's & BBB or higher by Standard's and Poor's |
| what did the Banking Act do? | separated banking and securities activities; prevented firms that accept deposits from underwriting stocks and bonds |
| what did the financial services modernization act do? | repealed glass-steagall act |
| allows a commercial bank to make periodic payments to a counter party in return for protection in the event that its holdings of mortgage-backed securities default | credit default swipes |
| ensures a transparent process for financial reporting | Sarbanes Oxley Act |
| are banks forced to have a minimum amount of capital as a percentage of total assets? | yes |
| how do banks satisfy regulatory requirements through retained earnings? | either they use retained earnings or issue stock to the public |
| how do banks satisfy regulatory requirements through dividends? | they reduce dividends to to retain more earnings |
| how do banks satisfy regulatory requirements through assets? | they sell assets to improve capital position |
| guidelines for capital requirements are commonly guided by recommendations in what? | Basel accords |
| the central banks of 12 major countries established uniform capital requirements | Basel I accords |
| refines risk measures and increases transparency; categories are refined to account for differences in risk levels | Basel II Frameworks |
| corrects deficiencies of basel II; higher capital requirements to offset bank exposure to derivatives | Basel III Frameworks |
| one of the stress tests applied to banks was? | it estimates the effects on the banks' capital levels if a recession lasts longer than expected |
| what is the troubled asset relief program? | It boosts the capital levels of banks with excessive exposure to mortgages or mortgage backed securities |
| six characteristics of CAMELS rating? | capital adequacy, asset quality, management, earnings, liquidity, sensitivity |
| problem banks are considered to have an average ranking of... | 4 or higher |
| how is capital adequacy determined? | capital/ assets; banks with higher ratio have higher capital adequacy |
| 5 Cs of asset quality? | capacity, collateral, condition, capital, character |
| borrowers ability to pay | capacity |
| quality of the assets that back the loan | collateral |
| circumstances that led to the needs for funds | condition |
| difference between the value of the borrower's assets and its liabilities | capital |
| borrower's willingness to repay loans as measured by its payment history on the loan and credit report | character |
| Ratings are based on: administrative skills, ability to comply with regulations, and ability to cope with a changing environment | management |
| a profitability ratio commonly used to evaluate banks is return on assets | earnings |
| assess the degree to which a bank might be exposed to adverse financial market conditions | sensitivity |
| what is the main limitation to the CAMELS system? | because there are so many banks, regulators do not have the resources to closely monitor each bank on a frequent basis |
| possible corrective actions by regulators for problem banks? | 1. examine frequently and discuss possible remedies;2. request boost in capital or delay expansion; 3. request periodical financial updates; 4. remove officials; 5. legal action |
| who is responsible for closing failed banks? | FDIC |
| how are failed banks liquidated? | insured depositors are reimbursed by the FDIC |
| how is the cost to the FDIC determined? | reimbursement to depositors minus the proceeds received from selling the bank's assets |
Created by:
devenmccormick
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