Banks and Banking Questions and Answers
Banks and Banking
A comedian once said “Banks lend you an umbrella when it is sunny and take it away when it rains”. Discuss.
I believe that the previous answer misunderstands the meaning of the quote. The meaning is that banks are more willing to loan money to those who do not need it as badly, at times when they do not...
Banks and Banking
What would happen if everyone who had money deposited at a bank wanted to withdraw it at the same time?
If literally everyone who had money deposited in a bank were to ask to withdraw that money at the same time, the bank would most likely fail. It would simply run out of money. The reason for this...
Banks and Banking
Why might ‘brick-to-click’ banks (banks that offer some online banking yet still have a physical location) be the...
Banks which have both a physical presence and an online presence offer customers the best of both worlds. They offer the convenience of online banking, but they also have the physical branch...
Banks and Banking
When a bank accepts a deposit from one of its customers, to the bank the deposit account is classified as a. an...
Strictly speaking, none of the options is technically correct. A correct answer would be that deposits represent both a liability and an asset. Option (d), "an asset in some cases and a liability...
Banks and Banking
What is the purpose of banking?
There are at least two ways to look at this. From the point of view of a bank, the purpose of banking is to make a profit. Banks are companies just like any other, trying to make money. They...
Banks and Banking
What does credit mean in banking terms?
In banking terms, “credit” means something like “the amount of money that a bank is willing to lend to a given individual.” If I have X amount of credit at a bank, they are willing to lend me X...
Banks and Banking
If banks are currently holding zero excess reserves and the Fed raises the required-reserve ratio, which of the...
The correct answer to this question is A. All of the other answers would be consistent with a situation in which the Fed actually lowers the reserve requirement. A reserve requirement requires...
Banks and Banking
How does federal deposit insurance encourage greater risk taking by banks?
The more that we human beings are protected from the consequences of our actions, the more risks we are likely to take. Think about it this way: if you were going to try to do a trapeze act,...
Banks and Banking
Who determines what a bank's reserve ratio is?
There are two ways to answer this. The required reserve ratio for a bank is determined by the central bank of the country in which the bank does business. In the US, the Fed determines the...
Banks and Banking
Can someone please explain to me thoroughly the purpose of interest rates in banks please?
Traditionally, there have been two purposes for interest rates with regard to banks. Today, only one of them is really relevant. The purpose for interest rates that is now obsolete is to attract...
Banks and Banking
Describe risk-based capital adequacy standards for banks.
Risk based capital adequacy standards have to do with the proportion of its deposits a bank must hold and not lend out. A risk based standard is one that takes into account how risky a bank's...
Banks and Banking
Why did banks continue to make loans even when they may have known that some people couldn't keep up with the monthly...
For the purposes of this answer, I will assume that you are asking about the lending practices of banks at the time of the housing bubble of the early to mid-2000s. During this period, there were...
Banks and Banking
The Federal Deposit Insurance Corporation (FDIC) maintains several websites providing information on its mission and...
The Federal Deposit Insurance Corporation (FDIC) was established in 1933 in response to the financial ruin millions of Americans faced when the mass-scale bank failures that accompanied the Great...
Banks and Banking
What are some pros and cons of on-line banking?
There are a number of pros and cons to banking with a bank that has no “brick and mortar” presence. Let us look at a few. Online banks tend to have better rates. They have fewer expenses because...
Banks and Banking
Given the large number of Illinois banks on the Federal Deposit Insurance Corporation's list of failed banks, how...
With 59 of its banks currently on the Federal Deposit Insurance Corporation's Failed Bank List, Illinois is certainly well-represented in the category of bank failures. While other states,...
Banks and Banking
How could a regional bank use the Internet effectivley to recruit loan professionals?
One strategy that has successfully been used by many regional and national enterprises in banking and other industries (so it has been widely tried) is that of developing a Careers center on a...
Banks and Banking
Banks' lending practices and consumers' own poor judgment got us into our current economic mess. Make an argument...
To argue that the government should not do this, you should focus on the idea that the government is not the most effective judge of who is and is not creditworthy. The government lacks the...
Banks and Banking
A single commercial bank must meet a 20% reserve requirement. If this bank has no excess reserves to begin with and...
The correct answer to this question is A. A reserve requirement tells the bank what percentage of its deposits it must hold and how much it may lend out. Before the deposit in this scenario, the...
Banks and Banking
Have banks have developed into what the world wants and needs?
Yes, banks have. Of course, they are not perfect. Some of them charge excessive (in the eyes of the consumer) fees or take risks with their depositors' money. But overall, they are certainly...
Banks and Banking
How would average people be affected if there were no federal deposit insurance?
Most people would not be affected tremendously if there were no federal deposit insurance. These days, people do not tend to keep that much money in banks. Theoretically, the lack of deposit...