Question: Under the Federal Deposit Insurance Reform Act

> What are the two major lines of property–casualty (P&C) insurance firms?

> How do life insurance companies earn profits?

> How do state guarantee funds for life insurance companies compare with deposit insurance for depository institutions?

> How does the primary function of an insurance company compare with that of a depository institution?

> You deposit $12,000 annually into a life insurance fund for the next 30 years, after which time you plan to retire. a. If the deposits are made at the beginning of the year and earn an interest rate of 7 percent, what will be the amount of retirement fun

> How and why is credit union membership limited?

> What does it mean when a savings institution is a mutual organization?

> What are the main assets and liabilities held by savings institutions?

> What two major pieces of legislation were adopted in the late 1980s and early 1990s to ameliorate the thrift crisis? Explain.

> What signal does a low debt-to-assets ratio for a finance company send to the capital markets?

> What is a wholesale motor vehicle loan?

> Why have finance companies begun to offer more mortgage and home equity loans?

> Why are finance companies less regulated than commercial banks?

> What advantages do finance companies have over banks in offering services to small-business customers?

> Why was the reported rate on motor vehicle loans historically higher for a finance company than a commercial bank? Why did this change in 1997?

> You deposit $10,000 annually into a life insurance fund for the next 10 years, after which time you plan to retire. a. If the deposits are made at the beginning of the year and earn an interest rate of 8 percent, what will be the amount in the retirement

> What are the major assets and liabilities held by finance companies?

> How does the amount of equity as a percentage of assets compare for finance companies and commercial banks? What accounts for the difference?

> What were the reasons for the crisis of the savings institutions industry in the mid-1980s?

> What are the three types of finance companies and how do they differ from commercial banks?

> How did the corporate credit unions perform during the financial crisis?

> How have local credit unions performed over the last several decades?

> What was Bank Transfer Day?

> Why did commercial banks pursue legal action against the credit union industry in the late 1990s? What was the result of this legal action?

> Who are the regulators of credit unions?

> What are the main assets and liabilities held by credit unions?

> You deposit $10,000 annually into a life insurance fund for the next 10 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in yea

> How does the size of the credit union industry compare to the commercial banking industry?

> Describe the three-tier system that makes up the credit union industry.

> Why were credit unions less affected by the sharp increase in interest rates in the late 1970s and early 1980s than the savings institution industry?

> How do the balance sheets of savings institutions differ from those of commercial banks? How do their sizes compare?

> What is the Basel Agreement?

> Why are commercial banks subject to reserve requirements?

> What changes did the Federal Deposit Insurance Reform Act of 2005 make to the deposit insurance premium calculations?

> What are the provisions on interstate banking in the Riegle Neal Interstate Banking and Branching Efficiency Act of 1994?

> What changes did the Federal Deposit Insurance Reform Act of 2005 make to the deposit insurance assessment scheme for DIs?

> What are some of the main features of the Foreign Bank Supervision Enhancement Act of 1991?

> Calculate the following: a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $240,000 for 20 years? Assume that the annuity will earn 7 percent per year. b. Calculate the annual cash flows from a $2.5 million,

> How have the International Banking Act of 1978 and the FDICIA of 1991 been detrimental to foreign banks in the United States?

> Identify the five zones of capital adequacy and explain the mandatory regulatory actions corresponding to each zone.

> How is the Tier I leverage ratio for an FI defined under Basel III?

> Under Basel III, what four capital ratios must DIs calculate and monitor?

> What is the significance of prompt corrective action as specified by the FDICIA legislation?

> If the reserve computation period extends from May 18 through May 31, what is the corresponding reserve maintenance period? What accounts for the difference?

> What is the capital conservation buffer? What is the countercyclical capital buffer?

> Under Basel III, how are risk weights for sovereign exposures determined?

> Under Basel III, how are residential one- to four-family mortgages assigned to a credit risk class?

> What forms of protection and regulation are imposed by regulators of CBs to ensure their safety and soundness?

> A property–casualty insurer brings in $5.55 million in premiums on its homeowners multiple line of insurance. The line’s losses amount to $3,962,700, expenses are $1,526,250, and dividends are $333,000. The insurer earns $349,650 in the investment of its

> How does a bank’s asset size affect its financial ratios?

> How does a bank’s choice of market niche affect its financial ratios?

> What is the difference between the net interest margin and the spread?

> A bank has an ROA of 1.0 percent. The industry average ROA is 1.5 percent. How can ratio analysis help the firm’s managers identify the reasons for this difference?

> What are the definitional differences between Common Equity Tier I, Tier I, and Tier II capital?

> A security analyst calculates the following ratios for two banks. How should the analyst evaluate the financial health of the two banks? Bank A Bank B Return on equity 22% 24% Return on assets 2% 1.5% 11x Equity multiplier Profit margin 16x 15% 14%

> What is the likely relationship between the interest income ratio and the noninterest income ratio?

> How does the asset utilization ratio for a bank compare to that of a retail company? How do the equity multipliers compare?

> How might the use of an end-of-the-year balance sheet bias the calculation of certain ratios?

> A property–casualty insurer brings in $6.25 million in premiums on its homeowner’s MP line of insurance. The line’s losses amount to $4,343,750, expenses are $1,593,750, and dividends are $156,250. The insurer earns $218,750 in the investment of its prem

> What is the difference between Basel I, Basel II, and Basel III?

> What are the major categories of off-balance-sheet activities?

> How do core deposits differ from purchased funds?

> How does a retail CD differ from a wholesale CD?

> How does a NOW account differ from a demand deposit?

> Repurchase agreements are listed as both assets and liabilities in Table 12–1. How can an account be both an asset and a liability? Table 12–1: Heartland Bank and Trust Bank of America Assets 1. Vault cash 2. Ixp

> What is shadow banking? How does the shadow banking system differ from the traditional banking system?

> What insurance activities are permitted for U.S. commercial bank holding companies?

> A Section 20 subsidiary of a major U.S. bank is planning to underwrite corporate securities and expects to generate $5 million in revenues. It currently underwrites U.S. Treasury securities and general obligation municipal bonds and earns annual fees of

> How has the separation of commercial banking and investment banking activities evolved through time? How does this differ from banking activities in other countries?

> Calculate the following: a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $200,000 for 20 years? Assume that the annuity will earn 10 percent per year. b. Calculate the annual cash flows (annuity payments)

> How does a bank’s report of condition differ from its report of income?

> What are the three levels of regulatory taxes faced by FIs when making loans? How does securitization reduce the levels of taxation?

> In addition to managing credit risk, what are some other reasons for the sale of loans by FIs?

> Who are the buyers and sellers of U.S. loans? Why do they participate in this activity?

> What are highly leveraged transactions? What constitutes the federal regulatory definition of an HLT?

> What is the difference between loan participations and loan assignments?

> Why are yields higher on loan sales than they are for similar maturity and issue size commercial paper issues?

> What are some of the key features of short-term loan sales?

> What is the difference between loans sold with recourse and without recourse from the perspective of both sellers and buyers?

> Can all assets and loans be securitized? Explain your answer.

> What is the capital conservation buffer? How would this buffer affect your answers in Problem 6? Data from Problem 6: National Bank has the following balance sheet (in millions) and has no off-balance-sheet activities. a. What is the CET1 risk-based

> Why do buyers of Class C tranches of collateralized mortgage obligations (CMOs) receive a lower return than purchasers of Class A tranches?

> How do FIs use securitization to manage their interest rate, credit, and liquidity risks?

> What are the differences between CMOs and MBBs?

> What is a collateralized mortgage obligation (CMO)? How is it similar to a pass-through security? How does it differ? In what way does the creation of a CMO use market segmentation to redistribute prepayment risk?

> What is prepayment risk? How does prepayment risk affect the cash flow stream on a fully amortized mortgage loan? What are the two primary factors that cause early payment?

> What specific changes occur on the balance sheet at the completion of the securitization process? What adjustments occur to the risk profile of the FI?

> Why have FIs been very active in loan securitization issuance of pass-through securities while they have reduced their volume of loan sales? Under what circumstances would you expect loan sales to dominate loan securitization?

> Answer the following: a. What are the two ways to use call and put options on T-bonds to generate positive cash flows when interest rates decline? b. When and how can an FI use options on T-bonds to hedge its assets and liabilities against interest rate

> What is basis risk? What are the sources of basis risk?

> What are the differences between a microhedge and a macrohedge for an FI? Why is it generally more efficient for FIs to employ a macrohedge than a series of microhedges?

> The following net transaction accounts have been documented by a bank for the computation of its reserve requirements (in millions). The average daily reserves at the Fed for the 14-day reserve maintenance period have been $22.7 million per day, and th

> An insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 percent. A finance company has $50 million of auto loans

> Suppose that you purchase a Treasury bond futures contract at $95 per $100 of face value. a. What is your obligation when you purchase this futures contract? b. If an FI purchases this contract, in what kind of hedge is it engaged? c. Assume that the Tre

> What is a naive hedge? How does a naive hedge protect an FI from risk?

> Why is the credit risk on a swap lower than the credit risk on a loan?

> How does a pure credit swap differ from a total return swap?

> What is a total return swap?

> Explain the similarity between a swap and a forward contract.

> How can caps, floors, and collars be used to hedge interest rate risk?