Chapter 20 465 Flashcards Quizlet PDF

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Key concepts: Foreign Exchange Risk

Minimum Capital Requirements

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Terms in this set (59) the difference between

economic value of capital

the MV of assets and liabilities is the definition of the A. accounting value of capital. B. regulatory value of capital. C. economic value of capital. D. book value of net worth. E. adjusted book value of net worth.

regulatory-defined

book value accounting concepts

capital and required leverage ratios are based in whole or in part on A. market value accounting concepts. B. book value accounting concepts.

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C. the net worth concept. D. the economic meaning of capital. E. None of the above.

each of the following is

assuring the highest possible return on

a function of capital

equity for the shareholders

EXCEPT A. funding the branch and other real investments to provide financial services. B. protecting the insurance fund and the taxpayers. C. assuring the highest possible return on equity for the shareholders. D. protecting uninsured depositors in the event of insolvency and https://quizlet.com/349616096/chapter-20-465-flash-cards/

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liquidation. E. absorbing losses in a manner that allows the FI to continue as a going concern.

under market value

must write down the value of their assets

accounting methods,

to fully reflect market values

FIS A. must write down the value of their assets to fully reflect market values. B. have a great deal of discretion in timing the write downs of problem loans. C. must conform to regulatory write-down schedules. D. have an incentive to fully reflect problem assets as they become known. E. are required to invest in expensive computerized bookkeeping systems.

Losses in asset values

equity holders of an FI

due to adverse changes in interest rates are borne initially https://quizlet.com/349616096/chapter-20-465-flash-cards/

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by the A. equity holders of an FI. B. liability holders of an FI. C. regulatory authorities. D. taxpayers. E. insured depositors.

Through August 2012,

234 billion

which of the following approximates the amount of funds paid back to the U.S. Treasury as part of the TARP Capital Purchase Program? A. $192 billion. B. $120 billion. C. $234 billion. D. $26 billion. E. $19 billion.

Through August 2012,

26.25 billion

which of the following approximates the amount of dividends and assessments that the U.S. Treasury has https://quizlet.com/349616096/chapter-20-465-flash-cards/

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received from entities participating in the TARP Capital Purchase Program? A. $2.1 billion. B. $1.2 billion. C. $12.2 billion. D. $16.0 billion. E. $26.25 billion.

What is the impact on

an increase of $2,024

economic capital of a 25 basis point decrease in interest rates if the FI is holding a 20-year, fixed-rate, 11 percent annual coupon bond selling at a par value of $100,000? A. A decrease of $250. B. An increase of $250. C. An increase of $2,024. D. A decrease of $1,959. E. No impact on capital since the book value is unchanged.

From a regulatory

no impact on capital since the book

perspective, what is the

value is unchanged

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impact on book value capital of a 25 basis point decrease in interest rates if the FI is holding a 20-year, fixed-rate, 11 percent annual coupon $100,000 par value bond? A. A decrease of $250. B. An increase of $250. C. An increase of $2,023. D. A decrease of $1,959. E. No impact on capital since the book value is unchanged.

The FASB set its

prices that would be received in an

guidelines to allow for

orderly market

the valuation of assets to be based on A. prices at the discretion of the DI's management. B. book values rather than market values. C. market values that existed when the assets were last marked to market.

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D. prices that would be received as part of a forced liquidation. E. prices that would be received in an orderly market.

Under historical

have a great deal of discretion in timing

accounting methods

the write downs of problem loans

for the market value of capital, FIs A. must write down the value of their assets to fully reflect market values. B. have a great deal of discretion in timing the write downs of problem loans. C. must conform to regulatory write-down schedules. D. have an incentive to fully reflect problems in the asset portfolio as they become known. E. invest in expensive computerized bookkeeping systems.

During the financial

DI management to use internal cash

crisis of 2008-2009, the

flow models and assumptions to

FASB provided

estimate fair value when there is limited

guidance on asset

market data available

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valuation that allowed A. DI management to use internal cash flow models and assumptions to estimate fair value when there is limited market data available. B. regulatory capital of banks to deviate from industry norms. C. excess reserves with the Fed to be included as regulatory capital. D. DIs to choose either book value treatment or market value treatment of asset valuation. E. DI management the option to postpone asset write-downs until adequate capital was available.

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Only A$4/month

Using a strict market

close banks too early under prompt

value accounting might

corrective action requirements

cause regulators to https://quizlet.com/349616096/chapter-20-465-flash-cards/

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A. revert to book value accounting in order to determine net worth. B. close banks too early under prompt corrective action requirements. C. exempt Dis from prompt corrective action. D. allow banks to operate without oversight even with negative net worth. E. suspend regulatory capital requirements during temporary spikes in interest rates.

Those regulatory

the securities and exchange commission

agencies that have

(SEC)

adopted some form of book value accounting standard to measure an FI's capital include all of the following except A. The Securities and Exchange Commission (SEC). B. The Federal Reserve. C. The Office of the Comptroller of the Currency (OCC). https://quizlet.com/349616096/chapter-20-465-flash-cards/

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D. The FDIC. E. State regulatory agencies.

Which of the following

FI's are increasingly trading, selling, and

is NOT a typical

securitizing assets

argument against market value accounting? A. Market value accounting introduces an unnecessary degree of variability into an FI's earnings. B. The use of market value accounting may reduce the willingness of FI's to invest in longer-term assets. C. FI's are increasingly trading, selling, and securitizing assets. D. Market value accounting is difficult to implement. E. Market value accounting may interfere with an FI's special functions as lenders and monitors of credit.

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The U.S. banking

of record high levels of profitability

industry built up record levels of capital in the early 2000s because A. the economy went through a downturn. B. problem loans increased. C. the regulators required higher amounts of equity sales. D. of record high levels of profitability. E. of mergers between large banks.

Bank regulators set

protect creditors from decrease in asset

minimum capital

values

standards to A. inhibit rapid growth rate of bank assets. B. protect shareholders from managerial fraud or incompetence. C. protect creditors from decreases in asset values. D. force banks to follow socially desirable policies. https://quizlet.com/349616096/chapter-20-465-flash-cards/

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E. make work for regulators. The concept of prompt

b and c above are correct

corrective action refers to the requirement A. that bank managers must address problems in the loan portfolio when they are first identified. B. that regulators must take specific actions when bank capital levels fall outside the well-capitalized category. C. that a receiver must be appointed when a bank's book value of capital to assets falls below 2 percent. D. that b and c above are correct. E. that all of the above are correct.

The Basel capital https://quizlet.com/349616096/chapter-20-465-flash-cards/

more stringent capital standards for 13/40

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requirements differ

large banks than for small banks

from previous capital standards in all except one of the following ways? A. More stringent capital standards for large banks than for small banks. B. Inclusion of off balance sheet assets in the asset base. C. Restrictions on the amount of goodwill that can be counted towards primary or Tier I capital. D. Risk weighting of assets on the basis of credit risk exposure. E. Risk weighting of off balance sheet contingencies.

The Basel capital

banks with riskier assets should have

requirements are based

higher absolute amounts of capital

upon the premise that A. banks with riskier assets should have higher capital ratios. B. banks with riskier assets should have lower capital ratios.

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C. banks with riskier assets should have lower absolute amounts of capital. D. banks with riskier assets should have higher absolute amounts of capital. E. there is no relationship between asset risk and capital.

The Basel I capital

all of the above

requirements as currently implemented include A. different credit risks of on-balance-sheet assets. B. different credit risks of off-balance-sheet assets. C. the consideration of market risk in 1998. D. All of the above. E. Only two of the above.

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The Basel II Accord

stresses the regulatory supervisory

effective at year-end

process by requiring regulators to be

2007 in the United

more involved in evaluating the banks

States

specific risk profile and environment

A. includes provisions covering minimum capital requirements for credit, market, and interest rate risk. B. stresses the regulatory supervisory process by requiring regulators to be more involved in evaluating the bank's specific risk profile and environment. C. requires only banks on the regulatory problem bank list to disclose publicly the degree and depth of problem issues as well as their capital adequacy. D. All of the above. E. Answers B and C only.

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Only A$4/month

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The measurement of

E - answers A and C only

credit risk under the Basel II Accord allows banks to choose between A. a standardized approach similar to that used under Basel I. B. a basic indicator approach that will cause banks to hold an additional 12 percent of capital. C. an internal rating system in which they must adhere to strict methodological and disclosure standards. D. All of the above. E. Answers A and C only.

The bank is considering

will increase because the assets will

changing its asset mix

have less risk

by moving $100 million of commercial loans into Treasury securities. If it does change the asset mix and capital https://quizlet.com/349616096/chapter-20-465-flash-cards/

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remains the same, the risk-based capital ratio A. will not change because the total assets have not changed. B. will decrease because the earnings rate on Treasuries is less than on loans. C. will increase by 16.67 percent. D. will increase because the assets will have less risk. E. will change, but the direction cannot be determined with the information given.

Which of the following

Tier III capital

is not a category of capital under Basel III? A. Tier III capital. B. Tier II capital. C. Common Equity Tier I. D. Total risk-based capital. E. Tier I capital.

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Which of the following

goodwill

assets is deducted from Common Equity Tier I capital? A. Trademarks. B. Goodwill. C. Patents. D. Bank premises. E. None of the above.

Which of the following

par value of noncumulative perpetual

is not included in the

preferred stock

Common Equity Tier I capital under Basel III? A. Retained earnings. B. Par value of common shares issued by the bank. C. Par value of noncumulative perpetual preferred stock. D. Paid-in excess (surplus) of common stock. E. Common shares issued by consolidated subsidiaries of the bank.

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Which of the following

the treatment of interest rate forward,

statements best

option, and swap contracts differs from

describes the treatment

the treatment of contingent or

of adjusting for credit

guarantee contracts

risk of off-balancesheet activities? A. All OBS activities are treated equally in making credit-risk adjustments. B. Standby letter of credit guarantees issued by banks to back commercial paper have a 50 percent conversion factor. C. The credit or default risk of over-the-counter contracts is approximately zero. D. The current exposure component of the credit equivalent amount of OBS derivative contracts reflects the credit risk if the contract counterparty defaults. E. The treatment of interest rate forward, option, and swap contracts differs from the treatment of contingent or guarantee contracts.

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A criticism of the Basel I

the lack of appropriate consideration of

risk-based capital ratio

the portfolio diversification effects of

is

credit risk

A. the incorporation of off-balance-sheet risk exposures. B. the application of a similar capital requirement across major banks in international banking centers across the world. C. the more systematic accounting of credit risk differences. D. the lack of appropriate consideration of the portfolio diversification effects of credit risk. E. Answers B and C only.

Which of the following

the ratio incorporates off-balance sheet

is NOT a criticism of the

risk exposures

Basel I risk-based capital ratio? A. All commercial loans are given equal weight regardless of the credit risk of the borrower.

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B. The ratio incorporates offbalance-sheet risk exposures. C. Grouping assets into different risk categories may encourage balance sheet asset allocation games. D. The treatment does not include interest rate or foreign exchange risk. E. The weights in the four risk categories imply a cardinal measurement of relevant risk between each category.

The primary difference

a heavier reliance on the use of ratings

between Basel I and

by external credit rating agencies for the

the proposed Basel III

assignment of assets to weight classes

in calculating riskadjusted assets is

A. that Basel II considers OBS assets. B. the use of only three weight classes rather than four classes.

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C. a heavier reliance on the use of ratings by external credit rating agencies for the assignment of assets to weight classes. D. All of the above. E. Answers A and C only.

The primary difference

the use of credit ratings in Basel III to

between Basel I and

assign credit risk weights on the OBS

the proposed Basel III

activities

in converting OBS values to on-balancesheet credit equivalent amounts is A. the use of credit ratings in Basel III to assign credit risk weights on the OBS activities. B. the use of six weight classes by Basel III rather than four classes. C. the use of the underlying counterparty activity in Basel II to assign credit risk weights on the OBS activities. D. All of the above. https://quizlet.com/3496...