As a bank manager, you conclude that the bank has a capital shortfall and should decrease the equity multiplier (i.e., increase the capital ratio) to prevent bank failure. Which of the following is one of things you can do to manage capital adequacy of the bank? a.Acquiring more reserves through borrowing from fed funds loans b.Selling the bank's holding of mortgage-backed securities and using the proceeds to decrease liabilities c.Repurchasing shares of the bank d.Increasing dividend payout ratio to reduce retained earnings.

As a bank manager, you conclude that the bank has a capital shortfall and should decrease the equity multiplier (i.e., increase the capital ratio) to prevent bank failure. Which of the following is one of things you can do to manage capital adequacy of the bank? a.Acquiring more reserves through borrowing from fed funds loans b.Selling the bank's holding of mortgage-backed securities and using the proceeds to decrease liabilities c.Repurchasing shares of the bank d.Increasing dividend payout ratio to reduce retained earnings.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 21P

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For a bank with deficient capital ratios, which of the following actions could be required by regulators to increase the capital ratios, all else constant? A. Reallocate assets to increase the bank's holdings of cash B. Increase the bank's leverage C. Increase the bank's growth rate by making additional commercial loans. D. Increase the bank's dividend payment E. Decrease the bank's holdings of short-term Treasury securities.
4: Which of the following statements about bank capital are TRUE? Banks hold equity capital to make sure they have enough cash to withstand deposit outflows. Banks with larger leverage ratios have less capital per dollar of assets. A bank holds equity capital to prevent insolvency. The level of bank capital is determined by the owners of the bank without any regulation. The only goal for capital adequacy management is to earn a high return with low risk. The level of bank capital will decrease when a bank has to write-down the value of an asset.
all of the following statements about a bank's capital are correct except: bank capital is the cushion a bank has against a sudden drop in the value of its assets a bank is more profitable the more capital it holds bank capital decreases as interest rate increase bank capital is what would be left after a bank's owner sold all the assets and paind off all the liabilities
Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy... Banks’ managers do not want to mmaintain much capital because they do not bear fully the costs of their failure. In addition to this reason others claim that banks’ managers do not want to maintain higher levels of capital because higher levels of capital attract greater scrutiny from bank regulators. Comment on this claim. The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits. Identify and discuss the second demand on the bank for liquidity.
How should a bank structure its liquid assets portfolio to take advantage of falling interest rates ? a. The bank should invest in short-term securities to minimise capital loss b. The bank should invest in long term securities to maximise capital gains. c. The bank should borrow at fixed interest rates d. The bank should issue certificate deposits with fixed interest rates. e. The bank should hold cash to maximise its interest income. Which option is correct
Which of the following is not one of the things that manager can do to reduce the capital ratio (increase the equity multiplier) if he or she finds that the bank has a capital surplus?O Buying back some of the bank's stock.O Paying out higher dividends to stockholders.O Selling more CDs and use the funds to invest in loans or securities.O Selling some mortgage-backed securities and use the proceeds to reduce liabilities.
Explain each action below is appropriated or not when a bank manager feels the bank is holding too much capital, and why? • Sell or retire stock• Increase dividends to reduce retained earnings• Increase asset growth via debt
How does capital protect a bank from failure? Why are banks currently holding capital well above the minimum regulatory requirement? What are the ways in which a bank can increase its capital ratio?
Banks improves the liquidity of the bank by a. Purchasing more assets of the bank b. Increasing the profit rates on saving accounts c. Generating additional income from investment d. By reducing the interest rates on loan
With no government regulation, how much bank capitals would banks hold? A. Too much capital, reducing the profitability of banks. B. Too much capital, making it more difficult to obtain loans. C. Too little capital, reducing the profitability of banks. D. Too little capital, making it more likely to fail.
Match the correct type of bank risk with the appropriate associated statement. 1.The possibility that a borrower could make late, reduced, or no payments on their loans. 2.Bank management may make poor strategic decisions that result in lower profits for the bank. 3.Hackers could break into bank customer accounts. 4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities. 5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank. 6.General economic conditions can affect banks in the U.S. Liquidity Risk 7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk. Credit Risk Business Operations Risk Market risk Interstate Rate Risk Liquidity Risk
Which of the following is NOT an advantage of depositing funds into a bank account (compared to directly purchasing corporate bonds and shares): Options 1. Higher transactions costs 2. Monitoring performed by the bank on behalf of the depositor 3. Better liquidity if funds are needed quickly 4. Efficient payment services 5.Reduced price risk if funds are needed immediately