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 is the primary difference between a 'secured' and an 'unsecured' commercial bank loan?
Answer: Secured loans are backed by collateral the lender can claim upon default; unsecured loans rely solely on the borrower's creditworthiness
Collateral in a secured loan gives the lender a secondary repayment source, reducing risk, while unsecured lending depends entirely on the borrower's ability and willingness to repay.
What does 'Tier 1 capital' represent for a commercial bank under Basel III?
Answer: Core capital, primarily consisting of common equity and retained earnings, used to absorb losses on a going-concern basis
Tier 1 capital is the highest-quality capital, dominated by common equity Tier 1 (CET1), and is the primary buffer against insolvency.
Which of the following best describes 'money laundering' risk in commercial banking?
Answer: The risk that criminals use bank accounts and transactions to disguise illegally obtained funds as legitimate income
Money laundering involves processing criminal proceeds through the banking system to make illegal funds appear legitimate, exposing banks to regulatory and reputational risk.
What is a 'prime rate' in U.S. commercial banking?
Answer: A benchmark lending rate commercial banks offer to their most creditworthy customers, typically set at 3% above the federal funds rate
The prime rate is a reference rate used to price loans to top-tier borrowers and historically has been maintained at approximately 3 percentage points above the federal funds rate.
When a commercial bank sells a group of mortgage loans to an investor, converting them into securities, this process is called:
Answer: Securitization
Securitization pools loans into securities (e.g., mortgage-backed securities) sold to investors, allowing banks to recycle capital and transfer credit risk off their balance sheets.
A commercial bank's 'efficiency ratio' is calculated as:
Answer: Non-interest expense divided by net revenue (net interest income plus non-interest income)
The efficiency ratio measures how much of a bank's revenue is consumed by operating expenses; a lower ratio indicates a more cost-efficient operation.
What is the role of the FDIC in U.S. commercial banking?
Answer: Insuring deposits up to $250,000 per depositor per insured bank and resolving failed banks
The FDIC insures eligible deposits and acts as receiver for failed FDIC-insured institutions, protecting depositors and maintaining confidence in the banking system.