lect 3

• Deposit holdings are said to be discretionary when the depositor is free to decide the frequency and amount of its transactions
• Deposits are a financial asset for depositors and a financial liability for depository institutions

  True
• The liabilities side of the balance sheet includes customer deposits and equity

  
• By exploiting economies of scale, banks transform a large number of small deposits into larger-size loans
• What is included on the assets side of a balance sheet?

  Cash, loans, investments

  
• Steps in the maturity transformation process:

  1️⃣ Banks create a maturity mismatch on their balance sheet

  2️⃣ They convert demand deposits into long-term financing
• What is the category with the highest value in GBP (Bn)?

  MOR

  
• Deposit-taking institutions offer discretionary deposits that can accommodate the amount and liquidity desired by surplus units
• What does the bar graph illustrate in terms of banks and PPI compensation?

  Compensation for mis-selling PPI

  
• Loans are a financial liability for borrowers


  True
• Deposit liabilities of banks form the major part of a country's money supply

  True
• What does the image show trends of at large US banks?

  Net and noninterest income

  
• When a deposit is made, a fraction is kept as a reserve, called the required reserve ratio
• The bank that has set aside the largest amount for PPI compensation is Lloyds Banking Group

  
• The highest point in the graph occurs in the year 2014

  
• What is the total change in deposits across all banks?

  500.00

  
• The cumulative change is calculated since March

  
• What is the trend shown in the line graph from 2008 to 2018?

  Fluctuating trend

  
• The cumulative change in income is measured from March 31, 2019

  
• What does the line graph show trends for?

  Net and noninterest income

  
• What is the primary distinction between deposit-taking institutions (DTIs) and non-deposit-taking institutions (NDTIs)?

  Flow of funds

  
• Steps in the credit multiplier process:

  1️⃣ A bank receives a new deposit

  2️⃣ It keeps a fraction as reserves

  3️⃣ It lends the remaining portion

  4️⃣ The loan is deposited in another bank

  5️⃣ The process repeats until no excess reserves remain
• Deposit-taking institutions receive a discretionary flow of funds

  
• What is the total change in loans across all banks?

  450.00

  
• OTH has a higher value than MIS in GBP (Bn).


  True

  
• What is the credit multiplier formula based on the required reserve ratio?

  1 / Reserve ratio
• Any item that the bank owns, or is owed, is considered a bank asset
• Customer deposits are the largest liability class for banks


  True
• The difference between total assets and total liabilities is the bank capital
• Bank capital acts as a cushion against losses to protect depositors


  True
• Under the universal banking model, the banking business includes all aspects of financial service activity
• Steps involved in ring-fencing:

  1️⃣ Resilience: Protect retail banking from unrelated risks

  2️⃣ Resolution: Allow banking groups to fail in an orderly manner
• A bank is insolvent when its assets are below its liabilities


  True
• Why are banks expected to diversify their risk and reach economies of scale and scope?

  Broad range of activities
• Ring-fencing requires the separation of retail/small business and deposit activity from riskier bank activities
• After the 2007-2008 crisis, academics and policymakers called for reducing the size and types of permissible activities for banks.


  True
• Match the pillar of ring-fencing with its purpose:

  Resilience ↔️ Protect retail banking activity

  Resolution ↔️ Allow banking groups to fail in an orderly manner
• What are the two pillars of ring-fencing as described in the study material?

  Resilience and resolution
• The "vital" or "core" banking services include accepting deposits, withdrawing money, and providing overdraft facilities
• The scope of ring-fencing is to avoid systemic risk by preventing problems from spreading across the financial system.


  True