Exam 15: The Management of Capital

Under Basel III,more flexible capital standards which includes the "buffer concept" means involvement of which two ratios?

The fact that a bank may suffer deficiencies in quality control,inefficiencies in producing and delivering of services,natural disasters,terrorist acts,weather damage,aging or faulty computer systems,errors in judgment by management,and fluctuations in economy that could adversely affect the bank's performance,is known as _________________________ risk.

The largest source of thrift capital in terms of dollar volume is common stock (par value).

The risk that a customer with whom the bank has entered into a contract with,will fail to pay or to perform,forcing the bank to find a replacement contract with another party that may be less satisfactory is what form of risk listed below?

Basel II had a different set of capital rules for different banks,and the number of categories is:

Why do banks generally prefer lower capital requirements?

According to the text,Basel II agreement had resulted in less total capital and:

A bank has a net profit margin of 5.25 percent.It has an asset utilization ratio of 45 percent and has an equity multiplier of 12.It retains 40 percent of its earnings each year.What is this bank's internal capital growth rate?

The Basel Agreement on new capital standards,as drafted in the 1980s,failed to deal with market risk.

Which of the following assets fit(s)into the 0 percent risk-weight category?

Under the FDIC Improvement Act of 1991,a bank whose leverage ratio drops to 2 percent or less is considered to be critically undercapitalized.

What type of preferred stock has appeared recently that carry a lower cost?

A bank has issued $5,000,000 in long term debt and since that time interest rates have risen so that it will only cost the bank $3,000,000 to buy the long term debt back.The bank decides to issue $3,000,000 in new stock and use the proceeds to retire the long term debt.What way of meeting their capital needs is the bank taking?

Supplemental capital such as the allowance for loan and lease losses,subordinated debt capital instruments,mandatory convertible debt,intermediate-term preferred stock,cumulative perpetual preferred stock with unpaid dividends,and equity notes and other long-term capital instruments that combine both debt and equity features is more commonly known as ________________________.

In the field of banking,capital refers principally to those funds contributed by a bank's owners.

__________ is a hybrid form of debt and equity capital issued to investors.

Second National Bank is forecasting a return on equity of 15 percent for this year.The board of directors wants to maintain its current policy of paying the bank's stockholders 40 percent of any net earnings the bank will earn.How fast can the bank's assets grow this year without jeopardizing its ratio of capital to assets?

A bank has $200 million in assets in the 0 percent risk-weight category.It has $400 million in assets in the 20 percent risk-weight category.It has $1,000 million in assets in the 50 percent risk-weight category and has $1,000 million in assets in the 100 percent risk-weight category.This bank has $96 million in Tier 1 capital and $48 million in Tier 2 capital.What is this bank's ratio of total capital to risk assets?

Off-balance-sheet commitments of banks carry capital requirements under the international (Basel)capital standards.

Portfolio diversification refers to seeking out customers located in different communities or countries,which presumably will experience different economic conditions.