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business
banking

Questions and Answers of Banking

Assume Sybase Software is thinking about three different size offerings for issuance of additional shares.What is the percentage underwriting spread for each sizeoffer?
Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is $23 per share. Other syndicate members may buy the stock for
The Wrigley Corporation needs to raise $44 million. The investment banking firm of Tinkers, Evers, & Chance will handle the transaction.a. If stock is utilized, 2,300,000 shares will be sold to
Kevin’s Bacon Company Inc. has earnings of $9 million with 2,100,000 shares outstanding before a public distribution. Seven hundred thousand shares will be included in the sale, of which 400,000
Becker Brothers is the managing underwriter for a 1.45-million-share issue by Jay’s Hamburger Heaven. Becker Brothers is “handling” 10 percent of the issue. Its price is $27 per share and the
Trump Card Co. will issue stock at a retail (public) price of $32. The company will receive $29.20 per share.a. What is the spread on the issue in percentage terms?b. If the firm demands receiving a
Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $16.85 per share for 550,000 shares. The company
Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers, and Chance is attempting to price the issue. The car rental industry generally trades at a 20 percent
The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D1) at the end of the current year will be
The Landers Corporation needs to raise $1.60 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 10 percent. Twenty thousand dollars in out-of-pocket costs
Midland Corporation has a net income of $19 million and 4 million shares outstanding. Its common stock is currently selling for $48 per share. Midland plans to sell common stock to set up a major new
The Presley Corporation is about to go public. It currently has aftertax earnings of $7,200,000, and 2,100,000 shares are owned by the present stockholders (the Presley family). The new public issue
Tyson Iron Works is about to go public. It currently has aftertax earnings of $4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new
I. B. Michaels has a chance to participate in a new public offering by Hi-Tech Micro Computers. His broker informs him that demand for the 700,000 shares to be issued is very strong. His broker’s
The management of Mitchell Labs decided to go private in 2002 by buying all 2.80 million of its outstanding shares at $24.80 per share. By 2006, management had restructured the company by selling off
The Bailey Corporation, a manufacturer of medical supplies and equipment, is planning to sell its shares to the general public for the first time. The firm’s investment banker, Robert Merrill and
What is a bank? How does a bank differ from most other financial-service providers?
Why are some banks reaching out to become one-stop financial-service conglomerates? Is this a good idea, in your opinion?
What is happening to banking’s share of the financial marketplace and why? What kind of banking and financial system do you foresee for the future if present trends continue?
What different kinds of services do banks offer the public today? What services do their closest competitors offer?
Why do banks and other financial intermediaries exist in modern society, according to the theory of finance?
How have banking and the financial-services market changed in recent years? What powerful forces are shaping financial markets and institutions today? Which of these forces do you think will continue
Can you explain why many of the forces you named in the answer to the previous question have led to significant problems for the management of banks and other financial firms and for their
What do you think the financial-services industry will look like 20 years from now? What are the implications of your projections for its management today?
Under U.S. law what must a corporation do to qualify and be regulated as a commercial bank?
Which businesses are banking’s closest and toughest competitors? What services do they offer that compete directly with banks’ services?
What is a financial department store? A universal bank? Why do you think these institutions have become so important in the modern financial system?
You recently graduated from college with a business degree and accepted a position at a major corporation earning more than you could have ever dreamed. You want to (1) Open a checking account for
Leading money center banks in the United States have accelerated their investment banking activities all over the globe in recent years, purchasing corporate debt securities and stock from their
The term bank has been applied broadly over the years to include a diverse set of financial-service institutions, which offer different financial-service packages. Identify as many of the different
What advantages can you see to banks affiliating with insurance companies? How might such an affiliation benefit a bank? An insurer? Can you identify any possible disadvantages to such an
Explain the difference between consolidation and convergence. Are these trends in banking and financial services related? Do they influence each other? How?
What is a financial intermediary? What are its key characteristics? Is a bank a type of financial intermediary? What other financial-services companies are financial intermediaries? What important
What are the reasons for regulating each of these key areas or functions?
What key roles does the Federal Reserve System perform in the banking and financial system?
What is the Glass-Steagall Act, and why was it important in banking history?
Why did the federal insurance system run into serious problems in the 1980s and 1990s? Can the current federal insurance system be improved? In what ways?
How does the FDIC deal with most failures?
What changes have occurred in U.S. banks’ authority to cross state lines?
How have bank failures influenced recent legislation?
What new regulatory issues remain to be resolved now that interstate banking is possible and security and insurance services are allowed to commingle with banking?
Why must we be concerned about privacy in the sharing and use of a financial-service customer’s information? Can the financial system operate efficiently if sharing nonpublic information is
Why were the Sarbanes-Oxley, Bank Secrecy, and USA Patriot Acts enacted in the United States? What impact are these laws and their supporting regulations likely to have on the financial-services
Explain how the FACT, Check 21, 2005 Bankruptcy, Financial Services Regulatory Relief, and Federal Deposit Insurance Reform Acts are likely to affect the revenues and costs of financial firms and
Which financial-service firms are regulated primarily at the federal level and which at the state level? Can you see problems in this type of regulatory structure?
Can you make a case for having only one regulatory agency for financial-service firms?
What services does the Federal Reserve provide to depository institutions?
How does the Fed affect the banking and financial system through open market operations (OMO)? Why is OMO the preferred tool for many central banks around the globe?
How can changes in the central bank loan (discount) rate and reserve requirements affect the operations of depository institutions? What happens to the legal reserves of the banking system when the
How did the Federal Reserve change the policy and practice of the discount window recently? Why was this change made?
How do the structures of the European Central Bank (ECB), the Bank of Japan, and the People’s Bank of China appear to be similar to the structure of the Federal Reserve System? How are these
How did the Federal Reserve and selected other central banks expands their policy tools to deal with the great credit crisis of 2007–2009? Did their efforts work satisfactorily?
What key areas or functions of a bank or other financial firm are regulated today?
What is the principal role of the Comptroller of the Currency?
What is the principal job performed by the FDIC?
How did the Equal Credit Opportunity Act and the Community Reinvestment Act address discrimination?
What changes in regulation did the Gramm-Leach-Bliley (Financial Services Modernization) Act bring about? Why?
In what ways is the regulation of nonbank financial institutions different from the regulation of banks in the United States? How are they similar?
What is monetary policy?
What is a primary dealer, and why are they important?
For each of the actions described, explain which government agency or agencies a financial manager must deal with and what laws are involved:A. Chartering a new bank.B. Establishing new bank branch
See if you can develop a good case for and against the regulation of financial institutions in the following areas:A. Restrictions on the number of new financial-service institutions allowed to enter
Consider the issue of whether or not the government should provide a system of deposit insurance. Should it be wholly or partly subsidized by the taxpayers? What portion of the cost should be borne
Suppose the Federal Reserve's discount rate is 4 percent. This afternoon, the Federal Reserve Board announces that it is approving the request of several of its Reserve Banks to raise their discount
Suppose the Fed purchases $500 million in government securities from a primary dealer. What will happen to the level of legal reserves in the banking system and by how much will they change?
If the Fed loans depository institutions $200 million in reserves from the discount windows of the Federal Reserve banks, by how much will the legal reserves of the banking system change? What
What happens when a central bank like the Federal Reserve expands its assets? Is there any upper limit to a central bank’s assets? Why?
The Trading Desk at the Federal Reserve Bank of New York elects to sell $100 million in U.S. government securities to its list of primary dealers. If other factors are held constant, what is likely
How would you describe the size distribution of American banks and the concentration of industry assets inside the United States? What is happening in general to the size distribution and
Describe the typical organization of a smaller community bank and a larger money-center bank. What does each major division or administrative unit within the organization do?
What is a branch banking organization?
What trend in branch banking has been prominent in the United States in recent years?
Do branch banks seem to perform differently than unit banks? In what ways? Can you explain any differences?
What nonbank businesses are bank holding companies permitted to acquire under the law?
Are there any significant advantages or disadvantages for holding companies or the public if these companies acquire banks or nonbank business ventures?
What did the Riegle-Neal Interstate Banking Act do? Why was it passed into law?
Can you see any advantages to allowing interstate banking? What about potential disadvantages?
How is the structure of the nonbank financial-services industry changing? How do the organizational and structural changes occurring today among nonbank financial-service firms parallel those
What relationship appears to exist between bank size, efficiency, and operating costs per unit of service produced and delivered? How about among nonbank financial-service providers?
Why is it so difficult to measure output and economies of scale and scope in the financial-services industry? How could this measurement problem affect any conclusions reached about firm size,
Of what benefit is agency theory in helping us understand the consequences of changing control of a financial-services firm? How can control by management as opposed to control by stockholders affect
What trends are affecting the way banks and their competitors are organized today?
What are unit banks?
What advantages might a unit bank have over banks of other organizational types? What disadvantages?
When must a holding company register with the Federal Reserve Board?
What is expense-preference behavior? How could it affect the performance of a financial firm?
What is corporate governance, and how might it be improved for the benefit of the owners and customers of financial firms?
As a financial journalist, you are writing an article explaining how the U.S. market shares of small, medium, and large banks have changed over the last 25 years. Utilize Exhibit 3–2 to approximate
Of the business activities listed here, which activities can be conducted through U.S.-regulated holding companies today?
You are currently serving as president and chief executive officer of a unit bank that has been operating out of its present location for five years. Due to the rapid growth of households and
Suppose you are managing a medium-size branch banking organization (holding about $25 billion in assets) with all of its branch offices located within the same state. The board of directors has asked
First Security Trust National Bank of Boston is considering making aggressive entry into the People’s Republic of China, possibly filing the necessary documents with the government in Beijing to
Why is the physical presence of a bank still important to many customers despite recent advances in long-distance communications technology?
Why is the creation (chartering) of new banks closely regulated? What about nonbank financial firms?
What key role does the FDIC play in the chartering process?
What are the advantages of having a national bank charter? A state bank charter?
What kinds of information must the organizers of new national banks provide the Comptroller of the Currency in order to get a charter? Why might this required information be important?
What are the key factors the organizers of a new financial firm should consider before deciding to seek a charter?
How well do most new banks perform for the public and for their owners?
Why is the establishment of new branch offices usually favored over the chartering of new financial firms as a vehicle for delivering financial services?

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