Exam 17: Technology and Other Operational Risks

Spruce Bank is planning to automate some of its back office functions and reduce operating costs.The installation of new computers and software will require an initial investment of $1,000,000.The savings generated because of reduced personnel cost is $200,000 per year.The bank uses an 8 percent rate of discount to evaluate cost saving projects which are expected to last 10 years. Should the bank undertake the project given the above information?

Technological advances in payment systems appear to have decreased the incentive to commit white-collar crime.

As far as regulation is concerned, the increased use of technology

As of December 2014, which of the following represented the highest percent of the dollar value of noncash transactions in the United States?

Suppose that the doubling of a bank's deposit funding allows the bank to triple its loan output.What can you conclude about the bank's production technology?

Appropriate technology may allow an FI to achieve lower-cost funding.

Although secure communications can be carried out between an FI and their customers in dedicated message centers, the centers have yet to replace e-mail communications as the primary means of customer contact.

As of December 2014, which of the following accounts for the highest volume of noncash transactions worldwide?

Account reconciliation redirects funds from accounts in a large number of different banks to a few centralized accounts at one bank.

Which of the following wholesale services offered by FIs to businesses allows the FI to combine the e-mail capabilities of the internet with the FIs ability to process payments electronically through the interbank payment networks?

In terms of dollar value, cybercrime has passed trafficking in illegal drugs.

Which of the following are potential benefits of technology for an FI?

As of 2015, the combined value of payments sent over Fedwire and the Clearing House Internet Payment System (CHIPS) often exceeded $5.0 trillion a day.

Investing in appropriate technology allows an FI to access lower-cost funding markets.

Companies like Google, Amazon, and Facebook have far more experience in cloud computing, artificial intelligence, and big data analytics that most banks.

Which of the following occur when managers undertake growth-oriented investments to increase an FI's size that may be inconsistent with stockholders' value-maximizing objectives?

As banks and other FIs increase the use of technology, an unintended consequence may be that

The growth areas in technology and revenues are now in data analytics, distributed ledger technology and FinTech challengers.

The increased use of wire transfers as a replacement for check and cash payments has decreased the risk of fraud.

The following information is available on the average costs of the three major banks in a given local market.Bank A has assets of $10 million and average costs are 15 percent, Bank B has assets of $20 million and average costs of 13 percent while Bank C has assets of $30 million with average costs of 12 percent.Average costs are measured as a proportion of total assets. Bank B plans to acquire Bank A and in the process cut costs by $100,000.What is the combined bank's average costs?