fin350 questions and applications 5

Chapter 18: Questions and Applications 3, 4, 5, 16, and 19

3. Moral Hazard and the Credit Crisis- Explain why the moral hazard problem received so much attention during the credit crisis.

4. FDIC Insurance- What led to the establishment of FDIC insurance?

5. Glass-Steagall Act- Briefly describe the Glass- Steagall Act. Then explain how the related regulations have changed.

16. Financial Services Modernization Act – Describe the Financial Services Modernization Act of 1999. Explain how it affected commercial bank operations and changed the competitive landscape among financial institutions.

19. Capital Requirements during the Credit Crisis – Explain how the accounting method applied to mortgage-backed securities made it more difficult for banks to satisfy capital requirements during the credit crisis.

Chapter 19: Questions and Applications 2 and 15; Problems 1, 2, and 3

2. Liquidity -Given the liquidity advantage of holding Treasury bills, why do banks hold only a relatively small portion of their assets as T-bills?

15. Bank Loan Diversification- In what two ways should a bank diversify its loans? Why? Is international diversification of loans a viable strategy for dealing with credit risk? Defend your answer.

1. Net Interest Margin-Suppose a bank earns $201 million in interest revenue but pays $156 million in interest expense. It also has $800 million in earning assets. What is its net interest margin?

2. Calculating Return on Assets-f a bank earns $169 million net profit after tax and has $17 billion invested in assets, what is its return on assets?

3. Calculating Return on Equity- If a bank earns $75 million net profits after tax and has $7.5 billion invested in assets and $600 million equity investment, what is its return on equity?

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