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
What distinguishes a 'revolving credit facility' from a term loan at a commercial bank?
Answer: A revolving facility allows the borrower to draw down, repay, and redraw funds up to a set limit; a term loan disburses funds once and requires scheduled repayment
Revolving facilities provide flexible access to funds up to a credit limit, unlike term loans, which have a fixed draw and repayment schedule.
What is the 'federal funds rate' and how does it affect commercial banks?
Answer: The overnight rate at which banks lend reserve balances to each other, influencing the cost of funds across the banking system
The federal funds rate is the overnight interbank lending rate set as a target by the FOMC; it ripples through the entire banking system, affecting deposit rates, loan rates, and bank profitability.
What is 'credit scoring' used for in commercial bank retail lending?
Answer: Statistically quantifying an individual borrower's creditworthiness to predict the likelihood of loan repayment
Credit scoring uses statistical models (like FICO scores) to evaluate a retail borrower's credit history and predict repayment probability.
A commercial bank that holds too many long-term fixed-rate loans while funding them with short-term deposits is exposed to:
Answer: Interest rate risk (specifically, repricing risk)
When rates rise, the cost of short-term deposit funding increases faster than the yield on fixed-rate long-term loans, compressing net interest margin—this is repricing risk.
In commercial banking, what is a 'troubled debt restructuring' (TDR)?
Answer: A concession granted by a bank to a borrower experiencing financial difficulty, such as a reduced interest rate or extended maturity
A TDR occurs when a bank modifies loan terms for a financially distressed borrower in ways it would not otherwise consider, such as lowering the interest rate or extending the repayment period.
Which of the following transactions would be reported under the Bank Secrecy Act (BSA)?
Answer: A business depositing $12,000 in cash, triggering a Currency Transaction Report (CTR)
The BSA requires banks to file a Currency Transaction Report (CTR) for any cash transaction exceeding $10,000.
What is 'tiered pricing' in commercial bank deposit products?
Answer: Offering higher interest rates to depositors who maintain larger balances
Tiered pricing rewards larger depositors with progressively higher interest rates as balance thresholds are met.