Commercial Bank Flashcards
7 cards from real Banking Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Commercial Bank flashcards as text
Which regulatory ratio requires U.S. commercial banks to hold a minimum percentage of deposits as reserves at the Federal Reserve?
Answer: Reserve requirement ratio
The reserve requirement ratio mandates that banks keep a specified percentage of deposits either in their vaults or on deposit at the Federal Reserve.
What is a 'certificate of deposit' (CD) issued by a commercial bank?
Answer: A time deposit that pays a fixed interest rate until a specified maturity date
A CD is a time deposit product where customers deposit funds for a fixed term at a specified interest rate, typically penalizing early withdrawal.
In commercial banking, what does 'net interest margin' (NIM) measure?
Answer: The difference between interest earned on loans and interest paid on deposits, divided by earning assets
NIM measures a bank's profitability by comparing the net interest income (interest earned minus interest paid) to its average earning assets.
What is the primary function of a commercial bank's trust department?
Answer: Managing assets on behalf of individuals, estates, and institutions
A trust department manages financial assets, estates, and trusts on behalf of clients, acting as a fiduciary.
Which type of commercial bank account allows unlimited check writing and is designed for everyday business transactions?
Answer: Demand deposit account (DDA)
A demand deposit account (DDA) allows account holders to withdraw funds or write checks at any time without advance notice.
What does the term 'correspondent banking' refer to?
Answer: An arrangement where one bank provides services to another bank in a different geographic area
Correspondent banking involves one bank (the correspondent) providing services such as wire transfers, foreign exchange, and check clearing to another bank (the respondent) that lacks direct access to those services.
Under Basel III rules, what is the purpose of the Liquidity Coverage Ratio (LCR)?
Answer: Require banks to hold sufficient high-quality liquid assets to survive a 30-day stress scenario
The LCR requires banks to hold enough high-quality liquid assets (HQLA) to cover net cash outflows over a 30-day stress period.