SOLVED

41) Suppose a bank has total assets of $3,000,000,000, of which $1,000,000,000 are cash assets and government securities with a “risk weight” of 0% and $2,000,000,000 are loans with a risk weight of 50%. The bank has total deposits and other liabilities of $2,800,000,000. The bank’s risk-based capital ratio is A) 6.7%. B) 20.0%. C) 33.3%. D) 50%. 42) Suppose a bank has total assets of $4,000,000,000, of which $1,000,000,000 are cash assets and government securities with a “risk weight” of 0% and $3,000,000,000 are loans with a risk weight of 50%. The bank has total deposits and other liabilities of $3,500,000,000. The bank’s risk-based capital ratio is A) 14.3%. B) 25.0%. C) 33.3%. D) 37.5%. 43) A bank has total assets of $3,000,000. Of these assets, $200,000 are cash and $300,000 are Treasury securities. Furthermore, the bank holds municipal revenue bonds of $600,000, residential mortgages of $1,000,000, and consumer and commercial loans of $900,000. This bank’s risk-adjusted assets are A) $3,000,000. B) $1,900,000. C) $1,250,000. D) $1,070,000. 44) A bank has total assets of $3,000,000. Of these assets, $200,000 are cash and $300,000 are Treasury securities. Furthermore, the bank holds municipal revenue bonds of $600,000, residential mortgages of $1,000,000, and consumer and commercial loans of $900,000. The bank has capital of $100,000. This bank’s risk-adjusted capital ratio is A) 9.3%. B) 4.0%. C) 3.3%. D) 8.0%. 45) The proposed Basel II capital adequacy rules A) address the incentive banks have to switch from riskier to safer assets. B) avoid the use of statistical rules by relying mostly on “common sense.” C) use highly theoretical measures of risk. D) will likely be adopted initially to a handful of large banks with significant international exposure. 46) A “forbearance” policy in dealing with weak banks is opposed by the __________ policy. A) prompt corrective action B) too-big-to-fail C) risk-based capital ratio D) leverage ratio 47) The __________ policy dealt with the problem of the consequences of identification of weak banks by changing the closure rule. A) forbearance B) setting of “firewalls” C) prompt corrective action D) risk-based capital ratio 48) Under the PCA guidelines, the FDIC must start closure proceedings on a bank once its leverage ratio falls below __________ percent. A) 0 B) 2 C) 5 D) 10 49) Risk-based deposit insurance premiums have recently been __________ and this is expected to __________ the moral hazard problem of deposit insurance. A) abolished; alleviate B) abolished; worsen C) established; alleviate D) established; worsen 50) The textbook states that in attacking moral hazard, having both risk-based capital requirements and risk-based deposit insurance premiums A) is necessary, to deal with the problem from both sides of the bank’s balance sheet. B) is redundant and that one of the policies should be ended. C) is necessary in order to deal with the moral hazard of both bankers and depositors. D) may be redundant in theory but advisable in practice given the difficulty of measuring risk.