Banking Operations and Services Flashcards

What is the primary purpose of a bank's asset-liability committee (ALCO)?

Answer: To manage interest rate risk and liquidity across the balance sheet

ALCO monitors and manages the balance sheet's exposure to interest rate risk and ensures adequate liquidity.

Which of the following best describes a revolving line of credit?

Answer: A commitment allowing repeated borrowing up to an approved limit

A revolving line lets borrowers draw, repay, and redraw funds repeatedly up to an established credit limit.

In the context of check processing, an MICR line contains:

Answer: Routing number, account number, and check number encoded in magnetic ink

MICR (Magnetic Ink Character Recognition) encodes routing, account, and check numbers at the bottom of each check for automated processing.

A bank issues a cashier's check. The primary obligor on this instrument is:

Answer: The issuing bank itself

A cashier's check is a direct obligation of the issuing bank, making it more secure than a personal check.

Which ratio measures a bank's ability to cover short-term liquidity needs using high-quality liquid assets?

Answer: Liquidity coverage ratio (LCR)

The LCR requires banks to hold enough high-quality liquid assets to survive a 30-day stress scenario under Basel III.

A sweep account automatically transfers funds between a checking account and an investment account primarily to:

Answer: Maximize interest earnings on idle balances

Sweep accounts move excess balances into higher-yielding instruments overnight, optimizing return on idle cash.

Which document governs the terms and conditions of a commercial checking account relationship?

Answer: Deposit account agreement

The deposit account agreement is the contract between the bank and customer that outlines fees, rights, and obligations for the account.