Exam 16: Lending Policies and Procedures: Managing Credit Risk

The Second State Bank has less than $100 million in assets and as a result primarily makes real estate loans,other consumer loans and loans to very small businesses.What factor determining the growth and mix of loans does this fact reflect?

Loans made by a particular bank secured by its own stock are not usually permitted except under special circumstances.

Net yield for a bank is calculated as:

A loan that examiners regard as uncollectible and unsuitable to be called a bank asset is called a:

Which of the following should be part of the written loan policy?

Dan Cross is a junior loan officer with First State Bank of Durant.He has been busy visiting local businesses to see if any of them need credit.Which step in the lending process is Dan performing?

Loans granted to businesses appear to convey positive information to the market place about a borrower's credit quality,enabling a borrower to obtain more and cheaper funds from other sources.

One of the six Cs of lending is ______________________ which looks at whether the borrower has a well-defined purpose for the loan and a serious intent to repay the loan.

In the mortgage environment of the early 2000s,lenders were encouraged to sell individual loans and packages of loans to buy more liquid securities,thus shifting much of the risk of lending to capital markets.This process is referred to as _________________.

A rating of "5" is the highest and the best rating that a U.S.bank can receive under the CAMELS rating system.

The South Carolina National Bank makes a loan to the Heritage Credit Union.What type of loan did this bank make?

Terry May,a loan officer with First National Bank,calculates liquidity and debt ratios for the Lava Lamp Company and also examines their cash flow statement.What step in the lending process is Terry performing?

In the United States,national banks cannot extend an unsecured loan to a single borrower that exceeds _____________ of the bank's capital and surplus.

Which of the following requires that bank loans to insiders be priced at market rates?

The "direct cash flow" method and "cash flow by origin" are two very different ways of assessing the cash flows of a potential borrower.

Loan review is considered to be a luxury,not a necessity for most banks,especially those with sound lending policies.

Loans extended to finance the purchase of automobiles,mobile homes,home appliances,and vacations are classified as:

An approach that divides the cash flows of a firm into three principal sources,namely cash flow from operations,cash flow from financing activities,and cash flow from investing activities,is known as the _____________ cash flow method.

______________ is one of the key features of any loan.This is one of the Cs of lending that examines whether a borrower will be able to generate enough liquid assets to repay the loan.

The risk of change in the quality of assets due to factors such as changes in the economy,natural disasters,and regulations are referred to as __________ factors,while management errors,illegal manipulation,and ineffective lending policies are considered as ___________ factors.