Podcast
Questions and Answers
Why do banks hold reserves according to the text?
Why do banks hold reserves according to the text?
- To comply with reserve requirements by the Fed or Bangko Sentral of the Philippines (correct)
- To maximize profits from loans
- To earn interest payments
- To make it harder for depositors to withdraw funds
What are bank assets referred to as, according to the text?
What are bank assets referred to as, according to the text?
- Income-earning assets (correct)
- Reserve assets
- Profit-making assets
- Excess assets
What is the main purpose of excess reserves held by banks?
What is the main purpose of excess reserves held by banks?
- To earn higher interest rates
- To increase lending capacity
- To meet withdrawal obligations (correct)
- To pay off creditors
What is the significance of the required reserve ratio set by regulatory authorities?
What is the significance of the required reserve ratio set by regulatory authorities?
What does insolvency mean for a bank according to the text?
What does insolvency mean for a bank according to the text?
Why do banks hold cash items in the process of collection according to the text?
Why do banks hold cash items in the process of collection according to the text?
Why do loans have a higher probability of default according to the text?
Why do loans have a higher probability of default according to the text?
What is the main reason a bank makes its highest return on loans?
What is the main reason a bank makes its highest return on loans?
What is asset transformation in banking?
What is asset transformation in banking?
Which category of loans is mentioned as one of the largest for commercial banks in the U.S.?
Which category of loans is mentioned as one of the largest for commercial banks in the U.S.?
What does a T-account in banking represent?
What does a T-account in banking represent?
How does a bank typically fund its long-term loans according to the text?
How does a bank typically fund its long-term loans according to the text?
What is the bank's excess reserves after the deposit outflow in the first scenario?
What is the bank's excess reserves after the deposit outflow in the first scenario?
What is the total amount of assets and liabilities for the bank?
What is the total amount of assets and liabilities for the bank?
Why is it mentioned that excess reserves are an insurance against the costs associated with deposit outflows?
Why is it mentioned that excess reserves are an insurance against the costs associated with deposit outflows?
What happens to the bank's balance sheet when it makes additional loans without keeping sufficient excess reserves?
What happens to the bank's balance sheet when it makes additional loans without keeping sufficient excess reserves?
What does borrowing $9M from other banks or corporations do to the borrowing bank's balance sheet?
What does borrowing $9M from other banks or corporations do to the borrowing bank's balance sheet?
What action can a bank take to address a shortfall in reserves when in violation of the required reserve ratio?
What action can a bank take to address a shortfall in reserves when in violation of the required reserve ratio?
Why do banks need to decide on the amount of capital they need to hold?
Why do banks need to decide on the amount of capital they need to hold?
In the scenario described, what happens to a bank's equity when its assets decline?
In the scenario described, what happens to a bank's equity when its assets decline?
What is the purpose of bank capital requirements set by regulatory authorities?
What is the purpose of bank capital requirements set by regulatory authorities?
How does having a higher capital-to-assets ratio benefit a bank during economic downturns?
How does having a higher capital-to-assets ratio benefit a bank during economic downturns?
What would happen to a bank's capital if its loans drop by $5M but its net worth remains positive?
What would happen to a bank's capital if its loans drop by $5M but its net worth remains positive?
Why is it crucial for banks to hold an adequate amount of capital according to the text?
Why is it crucial for banks to hold an adequate amount of capital according to the text?
What does the equity multiplier measure?
What does the equity multiplier measure?
Which bank has a higher equity multiplier according to the text?
Which bank has a higher equity multiplier according to the text?
Why are the equity holders of Low Capital Bank happier than those of High Capital Bank?
Why are the equity holders of Low Capital Bank happier than those of High Capital Bank?
What is the relationship between bank capital and the return on equity for owners?
What is the relationship between bank capital and the return on equity for owners?
How does reducing bank capital affect the return for owners according to the text?
How does reducing bank capital affect the return for owners according to the text?
Why is bank capital considered costly according to the text?
Why is bank capital considered costly according to the text?
