MONEY AND BANKING VOCABULARY 6

TERMS

 
Bank                     Bank loans
Banker                   C&I loans
First Bank of US         Consumer loans
Second Bank of US        Real estate loans
National Banking Act     Federal funds purchased
OCC                      Federal funds sold
Panic of 1907            Interest spread
Federal Reserve Act      Bank fixed costs
FDIC                     Bank operating expenses
Deregulation Act         Interest costs
Bank capital             Bank mergers
Equity capital           Bases of Bank Regulation
Long-term debt           Bank profits
Borrowing                Bank T-account
Bank soundness           Reserves
Bank runs                SAIF
BIF                      Moral hazard
Pay-off method           Purchase & Assumption
Coinsurance              Dual banking
Glass-Steagall           National Monetary Commission
ROE                      ROA

EXERCISE 1: COMPLETE THE FOLLOWING SENTENCES

  1. The term derived from the Italian word for a bench or self is ------------ .
  2. The Federal agency that insures the deposits of depository institutions is ----------- .
  3. ------------- represents a simplified expression of a bank's balance sheet.
  4. The difference between a bank's assets and its liabilities is ------------ .
  5. The economic event that encouraged the eventual passage of the Federal Reserve Act was ------------ .
  6. A system where chartering and examination of depository institutions is done by two levels of government is called a ----------------- system.
  7. Under the ----------- banks are prohibited from underwriting and dealing in corporate equity securities.
  8. When many depositors simultaneously withdraw their deposits from a bank , we said in class that a ------------ had occurred.
  9. On the other hand, ------------ is a run on many banks simultaneously.
  10. The ------------ and ------------- acted as fiscal agents for the government and attempted to control the note issues of state banks and for this reason were considered(or referred to) as ---------------- .
  11. The National Banking Act of 1864 established the ------------ to supervise and examine national banks.
  12. In 1989, the insurance funds of the ---------- were separated into two categories denoted as the ----------- and the -------- .
  13. Having deposit that covers only a portion of a depositor's total deposit liabilities is referred to as --------------- .
  14. ROE is equal to net after tax income divided by --------------- .
  15. Vault cash plus deposits at the Fed equals ------------ .
  16. The primary objective of bank regulation is --------------------- .
  17. The accounting entry for a transaction where a bank buys federal funds from another bank would be: debit------- and credit------ .
  18. The accounting entry for a transaction where a bank sells federal funds to another bank would be: debit------- and credit------ .
  19. ------------ is the expression given to a situation where those with the greatest risk of loss are the ones most likely to purchase insurance to cover the loss.
  20. When the -----------, resolves a bank failure by arranging a merger of the failed bank with a sound bank, the transaction is referred to as a ---------------- .

EXERCISE 2: MATCH THE WORDS IN COLUMN A WITH THE PHRASES IN COLUMN B 

         Column A                          Column B 
---- Bank equity                   1. D*id
---- Bank run                      2. Depreciation on an ATM
---- Bank profit                   3. [(L*il) - (D*id)]
---- FDIC                          4. C&I loans
---- BIF                           5. A bank loses its identity
---- Interest costs                6. Established in 1933
---- Fixed costs                   7. Established in 1989
---- Interest spread               8. Bank assets minus liabilities 
---- Bank merger                   9. Simultaneous withdrawal of deposits
---- Bank loans to businesses     10. (l*il)- [(D*i) + FC]

EXERCISE 3: CHOOSE THE CORRECT WORD TO COMPLETE THE SENTENCES BELOW

  1. The crisis withdrawal of deposits by the depositors of many banks is called a ---------------- (bank run, bank panic).
  2. A bank's cushion against the impact of operating losses its viability as an going concern is its -------- (long-term debt, cash reserves, equity capital).
  3. Legal reserves include vault cash plus ----------- (federal funds sold, deposits with the Fed, Treasury bills).
  4. Excess reserves are the difference between --------- (equity capital, total reserves, secondary reserves) and required reserves.
  5. The Office of the Comptroller of the Currency was established under the ----------- Federal Reserve Act, National Banking Act, Banking Act of 1993).
  6. The difference between revenues from loans and the interest costs of deposits is referred to as the ----------- (interest rate, GAP, interest spread, capital ratio).
  7. When the FDIC resolves a bank failure by closing the institution and returning the deposit funds to the insured depositors, we say the failure has been resolved by the ------------------------ (purchase & assumption method, pay-off method, bridge bank method).
  8. The acronym for the quotient of bank profits divided by the dollar amount of equity capital is the -------- (BIF, ROA, ROE, IBF).
  9. -------------- (Adverse selection, Coinsurance, Moral hazard) is the name used to describe the situation where the riskiest individuals are the most likely to purchase insurance.
  10. The ------------ (Deregulation Act,Glass-Steagall Act, National Banking Act) prohibits banks from trading corporate securities.

EXERCISE 4: USING THE INFORMATION GIVEN BELOW ANSWER THE FOLLOWING NUMERICAL QUESTIONS

Other Information about Mayberry Bank

il = 0.12 = interest rate on loans

id = 0.08 = interest on deposits

if = 0.06 = federal funds rate

rr = 0.10 = percentage required reserve

FC = $0.6M = fixed costs

a. What is Mayberry Bank's dollar profit ?

b. What is Mayberry bank's ROE ?

c. What is Mayberry Bank's ROA ?

d. What is Mayberry Bank's equity multiplier ?

e. Does Mayberry bank have excess reserves ?

f. What is the dollar amount of Mayberry Bank's excess or deficient reserves ?

g. If the Fed raises the reserve requirement to 0.15 (rr = 15%),does Mayberry Bank have excess reserves ?

h. What is the dollar amount of Mayberry Bank's excess or deficient reserves ?

i. If the Fed lowers the required reserve ratio to 0.08 (rr = 8%), does Mayberry Bank have excess reserves ?

j. What is the dollar amount of the excess or deficient reserves ?

k. Suppose Mayberry Bank's initial equity capital position just meets the current minimum regulatory requirement. Then suppose the regulator s lower the minimum requirement to 8% of total assets . If Mayberry bank just meets the new minimum capital requirement by how much in dollars could loans and deposits increase ?

l. Next suppose that the regulators raise the capital requirement to 15% of total assets. Assuming that Mayberry Bank is prohibited from issuing new stock, how could the bank meet the new capital requirement ?