\[\begin{array} { l c l l } & \text { National Benchmark } & \text { Bank A } & \text { Bank B } \\ \text { Consumer Loans } & 50 \text { percent } & 65 \text { percent } & 35 \text { percent } \\ \text { Commercial Loans } & 50 \text { percent } & 35 \text { percent } & 65 \text { percent } \end{array}\] -Estimate the standard deviation of Bank B's asset allocation proportions relative to the national benchmark.

A) 40.44 percent. B) 34.32 percent. C) 29.89 percent. D) 21.21 percent. E) 15.00 percent. A) 40.44 percent. B) 34.32 percent. C) 29.89 percent. D) 21.21 percent. E) 15.00 percent.

\[\begin{array} { l c l l } & \text { National Benchmark } & \text { Bank A } & \text { Bank B } \\ \text { Consumer Loans } & 50 \text { percent } & 65 \text { percent } & 35 \text { percent } \\ \text { Commercial Loans } & 50 \text { percent } & 35 \text { percent } & 65 \text { percent } \end{array}\] -Using standard deviations, which bank is in a better position if the average earnings on the assets of Bank A is 11 percent and Bank B is 12 percent (ignore all other factors)?

A) Bank B, because its earnings of 12 percent is higher than Bank A's 11 percent while, its standard deviation is lower. B) Bank B, because its earnings of 12 percent is higher compared to Bank A's 11 percent, while its standard deviation is higher. C) Bank B, because its earnings of 12 percent is higher compared to Bank A's 11 percent, while its standard deviation is the same. D) Bank A, because although its earnings of 11 percent is lower compared to Bank B's 12 percent, its standard deviation is significantly lower. E) Bank A, because although its earnings of 11 percent is lower compared to Bank B's 12 percent, its standard deviation is the same. A) Bank B, because its earnings of 12 percent is higher than Bank A's 11 percent while, its standard deviation is lower. B) Bank B, because its earnings of 12 percent is higher compared to Bank A's 11 percent, while its standard deviation is higher. C) Bank B, because its earnings of 12 percent is higher compared to Bank A's 11 percent, while its standard deviation is the same. D) Bank A, because although its earnings of 11 percent is lower compared to Bank B's 12 percent, its standard deviation is significantly lower. E) Bank A, because although its earnings of 11 percent is lower compared to Bank B's 12 percent, its standard deviation is the same.

\[\begin{array} { l l l l } & \text { National Banks } & \text { Bank A } & \text { Bank B } \\ \text { Real Estate Loans } & 60 \text { percent } & 30 \text { percent } & 56 \text { percent } \\ \text { Consumer Loans } & 20 \text { percent } & 30 \text { percent } & 28 \text { percent } \\ \text { Commercial Loans } & 20 \text { percent } & 10 \text { percent } & 16 \text { percent } \end{array}\] -If Bank A's average return on its loan portfolio is lower than that of Bank B's,

A) its risk-adjusted return is higher than Bank B's. B) its risk-adjusted return is lower than Bank B's. C) its standard deviation is lower than Bank B's. D) its standard deviation is higher than Bank B's. E) Answers b and d A) its risk-adjusted return is higher than Bank B's. B) its risk-adjusted return is lower than Bank B's. C) its standard deviation is lower than Bank B's. D) its standard deviation is higher than Bank B's. E) Answers b and d

Exam 11: Credit Risk: Loan Portfolio and Concentration Risk

Kansas Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans. The limit has been adopted under the assumption that if the unsecured loan is defaulted, there will be no recovery of interest or principal payments. For loans that are secured (collateralized), it is expected that 40 percent of interest and principal will be collected. -What is the concentration limit (as a percent of capital) for unsecured loans made by Kansas Bank?

(Multiple Choice)

4.7/5

(80)

Question 41

Which of the following is a measure of the sensitivity of loan losses in a particular business sector relative to the losses in an FI's loan portfolio?

(Multiple Choice)

4.8/5

(82)

Question 42

In the Moody's Analytics portfolio model, the expected return on a loan is the

(Multiple Choice)

4.9/5

(72)

Question 43

In the Moody's Analytics portfolio model, the expected loss on a loan is

(Multiple Choice)

4.8/5

(76)

Question 44

National Benchmark Bank A Bank B Consumer Loans 50 percent 65 percent 35 percent Commercial Loans 50 percent 35 percent 65 percent -Estimate the standard deviation of Bank B's asset allocation proportions relative to the national benchmark.

(Multiple Choice)

4.9/5

(76)

Question 45

Comparing the loan mix of an individual FI to a national benchmark loan mix is useful in determining the extent that the individual FI may differ from an efficient portfolio composition.

(True/False)

4.7/5

(86)

Question 46

Matrix Bank has compiled the following migration matrix on consumer loans. Which of the following statements accurately summarizes this data?

(Multiple Choice)

4.8/5

(81)

Question 47

A Hypothetical Rating Migration, or Transition Matrix, reflects all of the following EXCEPT

(Multiple Choice)

4.8/5

(78)

Question 48

The simple model of migration analysis tracks the credit ratings of companies that have borrowed from the FI.

(True/False)

4.9/5

(57)

Question 49

National Benchmark Bank A Bank B Consumer Loans 50 percent 65 percent 35 percent Commercial Loans 50 percent 35 percent 65 percent -Using standard deviations, which bank is in a better position if the average earnings on the assets of Bank A is 11 percent and Bank B is 12 percent (ignore all other factors)?

(Multiple Choice)

4.8/5

(77)

Question 50

In 1994, The Federal Reserve Board ruled against a proposal to use quantitative models to assess credit concentration risk because

(Multiple Choice)

4.8/5

(84)

Question 51

National Banks Bank A Bank B Real Estate Loans 60 percent 30 percent 56 percent Consumer Loans 20 percent 30 percent 28 percent Commercial Loans 20 percent 10 percent 16 percent -If Bank A's average return on its loan portfolio is lower than that of Bank B's,

(Multiple Choice)

4.8/5

(76)

Question 52

Which of the following is a source of loan volume data?

(Multiple Choice)

4.7/5

(82)

Question 53

Included in the Moody's Analytics model are recovery rates on defaulted loans.

(True/False)

4.9/5

(91)

Question 54

In the past, data availability limited the use of sophisticated portfolio models to set concentration limits.

(True/False)

4.9/5

(81)

Question 55

On loans fully secured by physical, non-real estate loans, the Basel Committee has set a loss given defaults (LGD) rate of

(Multiple Choice)

4.8/5

(82)

Question 56

Most portfolio managers will accept some level of risk above the minimum risk portfolio if they expect to receive higher returns.

(True/False)

4.8/5

(85)

Question 57

Banks whose loan portfolio composition deviates from the national benchmark should immediately implement policies to move toward benchmark alignment.

(True/False)

4.7/5

(86)

Question 58

In the Moody's Analytics portfolio model, the risk of a loan measures

(Multiple Choice)

5.0/5

(91)

Question 59

Showing 41 - 59 of 59

Exam 11: Credit Risk: Loan Portfolio and Concentration Risk

Which of the following is a measure of the sensitivity of loan losses in a particular business sector relative to the losses in an FI's loan portfolio?

In the Moody's Analytics portfolio model, the expected return on a loan is the

In the Moody's Analytics portfolio model, the expected loss on a loan is

National Benchmark Bank A Bank B Consumer Loans 50 percent 65 percent 35 percent Commercial Loans 50 percent 35 percent 65 percent -Estimate the standard deviation of Bank B's asset allocation proportions relative to the national benchmark.

Comparing the loan mix of an individual FI to a national benchmark loan mix is useful in determining the extent that the individual FI may differ from an efficient portfolio composition.

Matrix Bank has compiled the following migration matrix on consumer loans. Which of the following statements accurately summarizes this data?

A Hypothetical Rating Migration, or Transition Matrix, reflects all of the following EXCEPT

The simple model of migration analysis tracks the credit ratings of companies that have borrowed from the FI.

In 1994, The Federal Reserve Board ruled against a proposal to use quantitative models to assess credit concentration risk because

National Banks Bank A Bank B Real Estate Loans 60 percent 30 percent 56 percent Consumer Loans 20 percent 30 percent 28 percent Commercial Loans 20 percent 10 percent 16 percent -If Bank A's average return on its loan portfolio is lower than that of Bank B's,

Which of the following is a source of loan volume data?

Included in the Moody's Analytics model are recovery rates on defaulted loans.

In the past, data availability limited the use of sophisticated portfolio models to set concentration limits.

On loans fully secured by physical, non-real estate loans, the Basel Committee has set a loss given defaults (LGD) rate of

Most portfolio managers will accept some level of risk above the minimum risk portfolio if they expect to receive higher returns.

Banks whose loan portfolio composition deviates from the national benchmark should immediately implement policies to move toward benchmark alignment.

In the Moody's Analytics portfolio model, the risk of a loan measures

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters