The Board of Governors of Federal Reserve objected to Citigroups capital plan in its 2014 Comprehensive Capital Analysis Review because Cititgroup had excessive exposure to the debt of Greece and other European countries that were in fiscal difficulty.

True

False

A bank that funds a portfolio of assets with higher credit risk than another bank has to have more equity capital if creditors are to be indifferent between lending to either bank.

True

False

Base your answer to the following question on this document:

https://www.fdic.gov/regulations/safety/manual/section2-1.pdf

Bank capital performs several very important functions. It absorbs losses, promotes public confidence, helps restrict excessive asset growth, and provides protection to depositors and the deposit insurance funds.

True

False

Base your answer to the following question on this document:

https://www.fdic.gov/regulations/safety/manual/section2-1.pdf

Capital allows institutions to continue operating as going concerns during periods when operating losses or other adverse financial results are experienced.

True

False

Base your answers to the following question on this document:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160629a1.pdf

The Federal Reserve objected to the capital plans of Citigroup Inc. and Wells Fargo & Co. based on the qualitative assessments conducted by the Federal Reserve in CCAR 2016.

True

False

Holding large amounts of bank capital helps prevent bank failures because

-it means that the bank has a higher income.

-

it can be used to absorb the losses resulting from bad loans.

-

it makes loans easier to sell.

-it makes it easier to call in loans.

The interest rate spread between 3 month financial commercial paper and 3 month constant maturity treasury securities declined from 160 basis points on June 15^th, 2007 to 58 basis points on August 24, 2007. This is because the Fed was active in adding reserves to the banking system.

True

False

The spread between 10-year government bonds and 2-year government notes is currently 5%.

True

False

The objective of liquidity risk management is to ensure that a financial institution has the continuing ability to maintain cash flows that are adequate to fund operations and meet its other obligations on a timely and cost-effective basis in various market conditions.

True

False

The market value of a banks net worth is defined as the value of its assets less the value of its liabilities. If a banks assets have less value than its liabilities, and the banks assets were liquidated some of the banks labilities could not be satisfied.

True

False

When yield curves are steeply upward sloping,

		-medium-term interest rates are above both short-term and long-term interest rates.
		-short-term interest rates are about the same as long-term interest rates.
		-short-term interest rates are above long-term interest rates.
-		-long-term interest rates are above short-term interest rates. The yield on the ten-year treasury note is lower today than in August of 2016. True False The spread between 10-year and 2-year treasury notes is higher in August of 2017 than in August of 2016. True False