Banking Fundamentals Flashcards

What does the term 'liquidity' mean in banking?

Answer: A bank's ability to meet short-term financial obligations without significant loss

Liquidity refers to how easily a bank can convert assets to cash to cover immediate obligations without incurring large losses.

What is a 'maturity mismatch' in banking?

Answer: When short-term liabilities fund long-term assets, creating refinancing risk

A maturity mismatch occurs when banks fund long-term assets (like 30-year mortgages) with short-term liabilities (like demand deposits), creating vulnerability.

Which U.S. government agency administers the Troubled Asset Relief Program (TARP)?

Answer: The U.S. Treasury Department

TARP was administered by the U.S. Treasury Department and was created during the 2008 financial crisis to stabilize the financial system.

What is the primary purpose of the Bank Secrecy Act (BSA)?

Answer: To require banks to assist government agencies in detecting and preventing money laundering

The BSA requires financial institutions to maintain records and file reports that help detect and deter money laundering and other financial crimes.

What is a 'demand deposit'?

Answer: A deposit account from which funds can be withdrawn at any time without advance notice

Demand deposits, such as checking accounts, allow customers to withdraw funds on demand without prior notice to the bank.

What is the 'prime rate' in U.S. banking?

Answer: A benchmark interest rate banks use as a starting point for consumer and business loans

The prime rate is a benchmark lending rate, typically set 3 percentage points above the federal funds rate, used as a reference for many consumer and commercial loans.

Under Regulation D, what traditionally limited savings account withdrawals per month?

Answer: 6 withdrawals

Regulation D historically limited 'convenient' transfers from savings accounts to 6 per month, though the Fed suspended this limit in 2020.