Term
| What is the sheet this is on: Total assets = total liabilities + capital |
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Definition
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| This is a list of a bank's sources of funds (liabilities) and uses to which the funds are put (assets) |
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Definition
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| Banks obtain funds by ______________ and ________________ other liabilities such as deposits |
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Definition
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| Assets are the ______________ of funds |
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Definition
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| Liabilities are the ____________ of funds |
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Definition
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Term
| T/F: MMDAs (Money Market Deposit Accounts) are not subject to reserve requirements as checkable deposits are and are not included in the M1 definition of money |
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Definition
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Term
| Bank accounts that allow the owner of the account to write checks to third parties |
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Definition
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| The bank then uses these borrowed and issued funds (deposits) to acquire assets such as ___________ and ______________ |
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Definition
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Term
| How to banks make a profit? |
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Definition
| They charge an interest rate on their loans that is higher than the expenses on their liabilities |
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Term
| What are these examples of: non-interest-bearing checking accounts, interest bearing NOW accounts, and money market deposit accounts |
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Definition
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Term
| Checkable deposits and money market deposit accounts are payable when? |
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Definition
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Term
| A checkable deposit (because it is a part of their wealth) is an __________ for the depositor and a _______________ for the bank |
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Definition
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Term
| What is the primary source of bank funds? |
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Definition
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Term
| What are the two types of non-transaction deposits? |
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Definition
| Savings accounts and time deposits or CD's |
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Term
| T/F: The interest rate is higher on non-transaction deposits than checkable deposits |
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Definition
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Term
| What is the term for "borrowing from the Fed" or "Advances?" |
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Definition
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Term
| Bank capital is raised by selling new __________ or from retained earnings |
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Definition
| Equity- Bank capital also serves as a cushion against a drop in the value of its assets which could force the bank into insolvency |
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Term
| Deposits and currency that is physically held by banks |
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Definition
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Term
| Banks hold additional reserves _______ __________ because they are the MOST liquid of all bank assets and a bank can use them to meet its obligations when funds are withdrawn |
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Definition
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Term
| The fraction of reserve requirements is called |
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Definition
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Term
| Many small banks hold deposits in larger banks in exchange for a variety of services, including check collection, foreign exchange transactions, and help with securities purchases |
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Definition
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Term
| What are all of these examples of: reserves, cash items in process of collection, and deposits at other banks? |
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Definition
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Term
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Definition
| They are also called financial instruments but they are claims on the borrower's future income or assets |
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Term
| Are banks allowed to hold stock? |
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Definition
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Term
| There are three different types of securities a bank can hold for a company: |
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Definition
| U.S. govt securities- most liquid, state and local govt securities and other securities |
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Term
| A loan is more/less liquid than other assets because why? |
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Definition
| They are less liquid because they are not easily turned into cash until the loan matures |
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Term
| Because of their high liquidity, short-term U.S. govt securities are called? |
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Definition
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Term
| A loan is a ________________ for the corporation/individual borrowing, but a(n) ______________ for the bank making the loan |
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Definition
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Term
| What is a simplified balance sheet? |
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Definition
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Term
| Banks make profits by selling liabilities with one set of characteristics and using the proceeds to buy assets with a different set of characteristics- what is it doing with the asset? |
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Definition
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Term
| The Five C's that bank loan officers use to evaluate potential borrowers: |
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Definition
1. Character
2. Capacity- ability to repay
3. Collateral
4. Conditions- in the local and national economies
5. Capital- net worth |
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Term
| When deposits are lost because depositors make withdrawals and demand payment |
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Definition
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Term
| The acquisition of sufficiently liquid assets to meet banks obligations to DEPOSITORS- not the Fed |
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Definition
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Term
| A bank manager must pursue an acceptably low level of risk by acquiring assets that have a low rate of default and by diversifying asset holdings |
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Definition
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Term
| Acquire funds at a low cost |
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Definition
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Term
| The risk arising because borrowers may default |
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Definition
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Term
| The riskiness of earnings and returns on bank assets that results from interest-rate charges |
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Definition
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Term
| There are four different ways a bank can eliminate its shortfall of not having enough reserves: |
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Definition
1. Acquire reserves by borrowing them from other banks in the Federal funds market of by borrowing from other corporations
2. Sell securities
3. Borrow from the Fed
4. Reducing loans to meet the reserve requirements |
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Term
| The interest rate the Fed charges |
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Definition
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Term
| T/F: Excess reserves are insurance against the costs associated with deposit outflows |
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Definition
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Term
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Definition
1. Banks find borrowers who will pay high interest rates and are unlikely to default on their loans
2. Banks try to purchase securities with high returns and low risk
3. Banks must attempt to lower risk by diversifying- spreading out their assets- not having "All their eggs in one basket"
4. Manage liquidity so it can satisfy its reserve requirements without bearing huge costs |
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Term
| Capital Adequacy Management- 3 reasons |
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Definition
1. Bank capital helps prevent bank failure
2. The amount of capital affects the returns for the owners
3.A minimum amount of capital is required by the bank regulators |
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Term
| T/F: A bank maintains bank capital to lessen the chance that it will become insolvent |
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Definition
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Term
| This formula provides info on how efficiently a bank is being run, b/c it indicates how much profits are being generated on average by each dollar of assets |
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Definition
| Return on Assets = Net profits after taxes/ assets |
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Term
| This is a better measure because it describes how much is earned on the owners' equity investment |
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Definition
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Term
| Given the return on assets, the lower the bank capital, the _____________ the return for the owners of the bank. |
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Definition
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Term
| What does higher bank capital result in? |
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Definition
| Lower profits because the money is just sitting around not making a profit |
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Term
| Are banks required to hold bank capital? |
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Definition
| Yes- even though it is costly, there are still required to hold a certain amount |
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Term
| This is a bank's commitment to provide a firm with loans up to a given amount at an interest rate that is tied to some market interest rate- these are also short-term loan commitments |
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Definition
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Term
| The benefit of a loan commitment is providing the bank with what? |
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Definition
| A long term relationship with the customer |
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Term
| A firm receiving a loan must keep a required minimum amount of funds in a checking account at the bank |
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Definition
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Term
| Refusing to make loans even though borrowers are willing to pay the stated interest rate or higher |
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Definition
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Term
| The sensitivity of bank profits to changes in interest rates can be measured by using: one of two things |
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Definition
| Gap analysis or Duration analysis |
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Term
| What is an example of an off-balance sheet activity? |
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Definition
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