Banking Principles and Practices Quiz

Financial institutions that collect deposits from the public and provide loans, payment services, and asset custody.

Financial institutions that focus on investment activities, such as underwriting securities, mergers, and acquisitions.

Financial institutions that oversee the health and solvency of other banks and ensure their compliance with regulations.

The practice of a single financial institution offering both traditional banking services (like deposits and loans) and investment banking services (like underwriting and M&A).

The tendency for the lines between different financial institutions to become blurred, with banks offering services traditionally associated with investment banks, and vice versa.

The ability of a bank to meet its short-term obligations, such as withdrawals by depositors.

The ability of a bank to cover its liabilities and obligations, ensuring it can withstand potential losses.

The process by which central banks, like the Federal Reserve, manage the supply of money and credit in an economy, influencing interest rates, inflation, and economic growth.

A type of supervision that focuses on the overall health and stability of the financial system, rather than just individual banks.

The ability of the financial system to withstand unexpected shocks and operate smoothly, even in times of stress.

A situation where the financial system is at risk of collapse due to widespread failures and losses.

Supervisory actions and measures aimed at preventing or mitigating systemic risk, such as setting capital requirements for banks or regulating leverage.

The risk of failure of one financial institution leading to a cascade of failures across the system.

Supervisory approach that focuses on the safety and soundness of individual banks, ensuring they meet capital and liquidity requirements.

The new Core Principles have broadened the scope of risk-based supervision to include systemic stability.

The absence of financial instability or crisis, indicating a healthy and resilient financial system.

The initial stage of the supervisory process where authorities assess the fitness of a financial institution to operate, ensuring the system's safety and soundness.

The primary objective of banking supervision is to ensure the safety and soundness of banks and the banking system.

This includes day-to-day surveillance, risk monitoring and control, and enforcement actions.

The process of imposing consequences on banks for violating regulations or engaging in risky behavior.

Measures taken to handle failing banks, including bailouts, restructuring, and liquidation.

Ensuring banks have enough readily available funds to cover short-term obligations.

Ensuring banks have enough capital to cover potential losses and liabilities.

Supervision requires judgment and discretion, making it resource-intensive and prone to litigation, reputational risks, and a 'thankless task' where successes are often overshadowed by failures.

A situation where many depositors withdraw their funds from a bank simultaneously, often due to fear of the bank's stability. This fear becomes self-fulfilling, as the bank's ability to meet withdrawals is further reduced by the mass withdrawals.

The difference between the interest rate banks pay on deposits and the interest rate they charge on loans. This is the profit banks earn on their lending activities.

Banks use a small amount of their own capital to fund a large amount of lending. This increases their potential returns but also their risk.

Banks invest in assets that have an inherent risk of default or loss of value. This is a key feature of lending, as borrowers may not always repay their loans.

The mismatch between the maturity of bank assets (like loans) and liabilities (like deposits). This means banks borrow money short-term (deposits) but lend it long-term (loans), making them vulnerable to withdrawal demands.

The characteristics of the banking system that make it susceptible to financial crises. These features include illiquidity, leverage, and risky assets, which can amplify losses and make banks vulnerable to bank runs.

The core principle that explains why bank runs are so damaging. Depositors' fears of a bank's solvency lead to more withdrawals, which weakens the bank further, and so on.

A method of raising funds from the public by offering digital tokens or coins in exchange for money, often using cryptocurrencies.

A blockchain network where access is restricted to authorized users, allowing for greater control and customization for specific use cases.

A document outlining the goals, technology, and token distribution of an ICO, providing potential investors with information to make informed decisions.

A blockchain network where anyone can join, participate, and access information openly. This promotes transparency and decentralization.

A technology that enables a shared, secure, and transparent ledger across a network of computers, allowing for decentralized recording of data.

A blockchain network with restricted access to certain individuals or organizations for specific purposes, allowing for controlled participation and customized functionalities.

A process that verifies transactions on a DLT by ensuring all participating computers (nodes) agree on the validity of the data. It's like a digital handshake.

The ability to access and read information on a blockchain network.

A specific algorithm used in DLT to achieve consensus and validate transactions. Different DLTs have different consensus mechanisms.

The ability to create and submit transactions on a blockchain network.

The feature of DLT where transactions once validated and added to the ledger become permanently recorded and cannot be altered.

The ability to validate and verify transactions on a blockchain network.

A key feature of DLT, ensuring that participants cannot deny their involvement in a transaction. It provides proof of participation.

A consensus mechanism used in permissionless blockchains, where participants compete to solve complex mathematical problems to validate transactions and earn rewards.

A blockchain technology designed for enterprise use cases, prioritizing privacy and control over openness.

The use of cryptography in DLT to authorize transactions by associating them with specific users through public and private key pairs.