Question 1

When the final Basel III rules are implemented in 2019, the minimum Tier 1 capital/risk-weighted assets percentage will be:

Accepted Answer

A)  4% 
B)  6% 
C)  8% 
D)  8.5% 
E)  10.5% 
A)  4% 
B)  6% 
C)  8% 
D)  8.5% 
E)  10.5%

Question 2

To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Accepted Answer

A)  4%, 8%, and 3%, respectively. 
B)  8%, 5%, and 3%, respectively. 
C)  10%, 10%, and 10%, respectively. 
D)  6%, 10%, and 5%, respectively. 
E)  3%, 4%, and 8%, respectively. 
A)  4%, 8%, and 3%, respectively. 
B)  8%, 5%, and 3%, respectively. 
C)  10%, 10%, and 10%, respectively. 
D)  6%, 10%, and 5%, respectively. 
E)  3%, 4%, and 8%, respectively.

Question 3

Which of the following was not part of the Basel Agreement?

Accepted Answer

A)  Bank's required capital was linked to its composition of assets. 
B)  Banks are required to operate with a minimum level of equity. 
C)  The ownership of equity by banks was prohibited. 
D)  Capital requirements across countries were standardized. 
E)  The minimum total capital requirements were set to 8% of risk-adjusted assets. 
A)  Bank's required capital was linked to its composition of assets. 
B)  Banks are required to operate with a minimum level of equity. 
C)  The ownership of equity by banks was prohibited. 
D)  Capital requirements across countries were standardized. 
E)  The minimum total capital requirements were set to 8% of risk-adjusted assets.

Question 4

What are some of the weaknesses behind risk-based capital standards?

Accepted Answer

Risk-based capital standards are regulat

Question 5

Which of the following is not a weakness of risk-based capital standards?

Accepted Answer

A)  They ignore interest rate risk. 
B)  They ignore the value of deposit insurance. 
C)  They ignore changes in the market value of assets. 
D)  They ignore credit risk. 
E)  They ignore the value of a bank's charter. 
A)  They ignore interest rate risk. 
B)  They ignore the value of deposit insurance. 
C)  They ignore changes in the market value of assets. 
D)  They ignore credit risk. 
E)  They ignore the value of a bank's charter.

Question 6

Use the following information for questions 
 $\begin{array}{c|c|r|c}
{\text { Bank Assets }} && \text { RIsk Welght } &\text { Rlsk-A dJusted Assets }\
\hline \text { Cash and Treasury Securities } & \$ 2,000 & 0 \%&\$-\
\hline \text { Repurchase Agreements } & \$ 1,000 & 20 \% &\$ 200 \
\hline \text { Munic ipal Bonds } & \$ 1,500 & 20 \% & \$  300 \
\hline \text { Single Family Home Mortgages } & \$ 2,700 & 50 \% & \$  1,350 \
\hline \text { CMOs } & \$ 2,500 & 50 \% & \$  1,250 \
\hline \text { Commercial Loans } & \$ 1,500 & 100 \% & \$  1,500 \
\hline \text { Agricultural Loans } & \$ 2,100 & 100 \% & \$  2,100\
\hline \text { Allowance for Loan Loss } & \$(300) & 0 \% &\$-\
\hline \text { Bank Buildings } & \$ 2,000 & 100 \% &\$2,000\
\hline \text { Total } & \$ 15,000 &&\$8,700
\end{array}$
-The minimum total capital for this bank is:

Accepted Answer

A)  $348 
B)  $450 
C)  $509 
D)  $581 
E)  $696 
A)  $348 
B)  $450 
C)  $509 
D)  $581 
E)  $696

Question 7

To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Accepted Answer

A)  4%, 8%, and 3%, respectively. 
B)  8%, 5%, and 3%, respectively. 
C)  10%, 10%, and 10%, respectively. 
D)  6%, 10%, and 5%, respectively. 
E)  3%, 4%, and 8%, respectively. 
A)  4%, 8%, and 3%, respectively. 
B)  8%, 5%, and 3%, respectively. 
C)  10%, 10%, and 10%, respectively. 
D)  6%, 10%, and 5%, respectively. 
E)  3%, 4%, and 8%, respectively.

Question 8

Which of the following is not true regarding common stock?

Accepted Answer

A)  Common stock has no maturity. 
B)  New issues of common stock may dilute existing shareholder equity. 
C)  Common stock is a permanent source of funds. 
D)  Dividends paid are not tax-deductible. 
E)  Dividends are considered a fixed charge that must be paid. 
A)  Common stock has no maturity. 
B)  New issues of common stock may dilute existing shareholder equity. 
C)  Common stock is a permanent source of funds. 
D)  Dividends paid are not tax-deductible. 
E)  Dividends are considered a fixed charge that must be paid.

Question 9

In general, bank capital ratios have increased over the last 100 years.

Accepted Answer

A) True 
 B)False

Question 10

A bank that does not meet the minimum levels for Tier 1 capital, total capital, and leverage capital ratios is classified as:

Accepted Answer

A)  well-capitalized. 
B)  adequately capitalized. 
C)  undercapitalized. 
D)  significantly undercapitalized. 
E)  critically undercapitalized. 
A)  well-capitalized. 
B)  adequately capitalized. 
C)  undercapitalized. 
D)  significantly undercapitalized. 
E)  critically undercapitalized.

Question 11

For a bank with deficient capital ratios, which of the following actions could be taken to increase the capital ratios, holding everything else the same?

Accepted Answer

A)  Cut the bank's dividend payment. 
B)  Increase the bank's burden. 
C)  Repurchase the bank's common stock on the open market. 
D)  Increase the bank's growth rate by making additional commercial loans. 
E)  Reduce the bank's holdings of Treasury securities. 
A)  Cut the bank's dividend payment. 
B)  Increase the bank's burden. 
C)  Repurchase the bank's common stock on the open market. 
D)  Increase the bank's growth rate by making additional commercial loans. 
E)  Reduce the bank's holdings of Treasury securities.

Question 12

Discuss the rationale behind risk-based capital requirements.

Accepted Answer

Risk-based capital requirements are desi

Question 13

Use the following information for questions 
 $\begin{array}{c|c|r|c}
{\text { Bank Assets }} && \text { RIsk Welght } &\text { Rlsk-A dJusted Assets }\
\hline \text { Cash and Treasury Securities } & \$ 2,000 & 0 \%&\$-\
\hline \text { Repurchase Agreements } & \$ 1,000 & 20 \% &\$ 200 \
\hline \text { Munic ipal Bonds } & \$ 1,500 & 20 \% & \$  300 \
\hline \text { Single Family Home Mortgages } & \$ 2,700 & 50 \% & \$  1,350 \
\hline \text { CMOs } & \$ 2,500 & 50 \% & \$  1,250 \
\hline \text { Commercial Loans } & \$ 1,500 & 100 \% & \$  1,500 \
\hline \text { Agricultural Loans } & \$ 2,100 & 100 \% & \$  2,100\
\hline \text { Allowance for Loan Loss } & \$(300) & 0 \% &\$-\
\hline \text { Bank Buildings } & \$ 2,000 & 100 \% &\$2,000\
\hline \text { Total } & \$ 15,000 &&\$8,700
\end{array}$
-The minimum Tier 1 capital for this bank is:

Accepted Answer

A)  $348 
B)  $450 
C)  $509 
D)  $581 
E)  $696 
A)  $348 
B)  $450 
C)  $509 
D)  $581 
E)  $696

Question 14

Why do regulators prefer higher capital requirements?

Accepted Answer

A)  It justifies the existence of regulatory agencies. 
B)  It better protects the deposit insurance fund. 
C)  It enhances bank asset quality. 
D)  It decreases bank profitability. 
E)  It increases bank leverage. 
A)  It justifies the existence of regulatory agencies. 
B)  It better protects the deposit insurance fund. 
C)  It enhances bank asset quality. 
D)  It decreases bank profitability. 
E)  It increases bank leverage.

Question 15

Which of the following is not part of Tier 1 or core capital?

Accepted Answer

A)  minority interests in equity capital of consolidated subsidiaries. 
B)  common stockholders equity 
C)  cumulative perpetual preferred stock. 
D)  noncumulative perpetual preferred stock. 
E)  All of the above are part of Tier 1 or core capital.. 
A)  minority interests in equity capital of consolidated subsidiaries. 
B)  common stockholders equity 
C)  cumulative perpetual preferred stock. 
D)  noncumulative perpetual preferred stock. 
E)  All of the above are part of Tier 1 or core capital..

Question 16

A significantly undercapitalized bank is one that does not meet the minimum levels for all three capital ratios.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is included in regulatory capital but not accounting capital?

Accepted Answer

A)  Capital reserve for contingencies 
B)  Preferred stock 
C)  Subordinated debt 
D)  Surplus 
E)  All of the above are included in both regulatory and accounting capital 
A)  Capital reserve for contingencies 
B)  Preferred stock 
C)  Subordinated debt 
D)  Surplus 
E)  All of the above are included in both regulatory and accounting capital

Question 18

Under the current risk-based capital requirements, banks must hold capital against standby letters of credit they have issued as guarantees.

Accepted Answer

A) True 
 B)False

Question 19

Use the following information for questions 
 $\begin{array}{l|r|l|lr}
\text { Bank Assets }&&\text { Bank Liabilities }\
\hline\text { Cash and Treasury Securities } & \$ 2,500 & \text { Deposits } & \$ & 13,800 \
\hline \text { Repurchase Agreements } & \$ 1,000 & \text { Subordinated Debt } & \$ & 250\
\hline \text { Municipal Bonds } & \$ 1,500 & \text { Cumulative Preferred Stock } & \$ & 200 \
\hline \text { Single Family Home Mortgages } & \$ 2,700 & \text { Common Stock } & \$ & 100 \
\hline \text { Commercial Loans } & \$ 4,000 & \text { Common Stock Surplus } & \$ & 300\
\hline\text { Agricultural Loans } & \$ 1,500 & \text { Retained Earnings } & \$ & 350 \
\hline \text { Allowance for Loan Loss } & \$(350) & & &\
\hline \text { Bank Buildings } & \$ 2,000 \
\hline \text { Goodwill } & \$ 150 \
\hline \text { Total } & \$ 15,000&&\$15,000\
\end{array}$
-The tangible common equity (TCE) ratio for this bank is:

Accepted Answer

A)  4.00% 
B)  4.04% 
C)  5.00% 
D)  5.05% 
E)  5.39% 
A)  4.00% 
B)  4.04% 
C)  5.00% 
D)  5.05% 
E)  5.39%

Question 20

An adequately capitalized bank may obtain brokered deposits without FDIC approval.

Accepted Answer

A) True 
 B)False

When the final Basel III rules are implemented in 2019, the minimum Tier 1 capital/risk-weighted assets percentage will be:

To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Which of the following was not part of the Basel Agreement?

What are some of the weaknesses behind risk-based capital standards?

Which of the following is not a weakness of risk-based capital standards?

To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Which of the following is not true regarding common stock?

In general, bank capital ratios have increased over the last 100 years.

A bank that does not meet the minimum levels for Tier 1 capital, total capital, and leverage capital ratios is classified as:

For a bank with deficient capital ratios, which of the following actions could be taken to increase the capital ratios, holding everything else the same?

Discuss the rationale behind risk-based capital requirements.

Why do regulators prefer higher capital requirements?

Which of the following is not part of Tier 1 or core capital?

A significantly undercapitalized bank is one that does not meet the minimum levels for all three capital ratios.

Which of the following is included in regulatory capital but not accounting capital?

Under the current risk-based capital requirements, banks must hold capital against standby letters of credit they have issued as guarantees.

An adequately capitalized bank may obtain brokered deposits without FDIC approval.

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Managing Interest Rate Risk: Duration Gap and Economic Value of Equity

Using Derivatives to Manage Interest Rate Risk

Funding the Bank

Managing Liquidity

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters

Exam 12: The Effective Use of Capital

When the final Basel III rules are implemented in 2019, the minimum Tier 1 capital/risk-weighted assets percentage will be:

To be considered adequately capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Which of the following was not part of the Basel Agreement?

What are some of the weaknesses behind risk-based capital standards?

Which of the following is not a weakness of risk-based capital standards?

To be considered well-capitalized, a bank's minimum Tier 1 capital, total capital, and leverage capital must be:

Which of the following is not true regarding common stock?

In general, bank capital ratios have increased over the last 100 years.

A bank that does not meet the minimum levels for Tier 1 capital, total capital, and leverage capital ratios is classified as:

For a bank with deficient capital ratios, which of the following actions could be taken to increase the capital ratios, holding everything else the same?

Discuss the rationale behind risk-based capital requirements.

Why do regulators prefer higher capital requirements?

Which of the following is not part of Tier 1 or core capital?

A significantly undercapitalized bank is one that does not meet the minimum levels for all three capital ratios.

Which of the following is included in regulatory capital but not accounting capital?

Under the current risk-based capital requirements, banks must hold capital against standby letters of credit they have issued as guarantees.

An adequately capitalized bank may obtain brokered deposits without FDIC approval.

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Managing Interest Rate Risk: Duration Gap and Economic Value of Equity

Using Derivatives to Manage Interest Rate Risk

Funding the Bank

Managing Liquidity

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters