FIN 480 LATEST 2026 EXAMINATION SETS QUESTIONS
AND SOLUTIONS GUARANTEE A+
✔✔Banking - ✔✔combination of businesses designed to deliver the services already
discussed
- linking borrowers and savers
- processing info
- diversification of risk
- payments & liquidity
✔✔???
In the last 30 years, the number of banks with branches has ____________, while the
number of unit banks has ______________. - ✔✔increased; decreased
✔✔Big 4 Banks - ✔✔U.S. banking system dominated by small # of really large banks...
Bank of America, JP Morgan Chase, Citigroup, Wells Fargo
✔✔McFadden Act - ✔✔required that nationally chartered banks meet the branching
restriction of the states in which they were located
- most states have laws forbidding branch banking... results in large number of small
banks
- prohibited inter-state banks (could only branch in one state)
- fear that large banks would drive small banks out of business, reducing banking quality
in smaller communities (fragmented banking system nearly devoid of large institutions)
✔✔Glass-Steagall Act - ✔✔- created Federal Deposit Insurance Corporation (FDIC)...
provided insurance to individual depositors, so they would not lose their savings in the
event that a bank failed
- prohibited commercial banks from engaging in insurance & securities business
- restricted bank assets to certain approved forms of debt
- prohibited banks from paying interest on demand deposits
- imposed maximum interest rates for savings accounts... led to things like money
market funds
✔✔3-6-3 Rule - ✔✔pay 3% interest to depositors, charge 6% interest to borrowers, be
on golf course by 3:00
- bank regulations limited what banks could do, therefore eliminating competition
between then... easy life for bankers but not good for society
✔✔???
The majority of banks have a _____________. - ✔✔state charter
✔✔Economies of Scope - ✔✔"cross-selling", recognizing to spread out & diversify
products (ex: don't make 10 mil Corollas, make 1 mil Corollas & then diff. type of car)
,✔✔Riegle-Neal Act - ✔✔repealed McFadden Act's prohibition of interstate branching
✔✔Gramm-Leach-Biley Act - ✔✔repealed Glass-Steagall Act's prohibition of mergers
between commercial banks & insurance companies or security firms
✔✔Dodd-Frank Act - ✔✔aims to prevent financial crises & govt. bailouts of
intermediaries, partly through govt. oversight of systematically important financial
institutions
✔✔???
The U.S. has many banks because: - ✔✔many states outlawed bank branching
✔✔Balance Sheet of Commercial Banks - ✔✔difference between a bank's assets and
liabilities is the bank's capital or net worth(value of bank to its owners)... A-L=E
✔✔Bank's Profits - ✔✔come from both service fees & from difference between what it
pays for its liabilities & the return it receives on its assets
✔✔Income Statement - ✔✔Profits = Revenue - Costs
✔✔Balance Sheet - ✔✔Assets = Liabilities + Equity
✔✔Assets & Profits - ✔✔a bank loans money (assets) and ideally makes more money
than it pays to its creditors (liabilities)
✔✔Assets - ✔✔-asset side of balance sheet shows what banks do with funds they raise
- assets into 4 categories: cash, securities, loans, all other assets
✔✔Cash - ✔✔most liquid of bank's assets
Three Types:
- reserves
- cash items in process of collection
- balances of accounts that banks hold at other banks
✔✔Reserves - ✔✔most important, regulations require certain % of cash held in
reserves, includes... cash in bank's vault, vault cash, & bank's deposits at Federal
Reserve
✔✔Cash Items in Process of Collection - ✔✔uncollected funds from checks
✔✔Balances of Accounts that Banks Hold at Other Banks - ✔✔small banks have
accounts at large banks (correspondent bank deposits), banks want to minimize cash
holdings because they earn less on cash
, ✔✔Securities - ✔✔- since banks cannot hold stocks, these are only bonds
- split between U.S. govt. & agency securities, other securities (state & local govt.
bonds)
- *about half of all securities are mortgage-backed
- sizable portion are very liquid, sometimes referred to as secondary reserves
✔✔Loans - ✔✔primary assets of modern banks (account for well over 50% of assets), 5
loan types differ in their liquidity
✔✔Five Categories of Loans - ✔✔1. Business loans called commercial & industrial
loans (C&I loans)
2. Real estate loans including both home & commercial mortgages & home equity loans
3. Consumer loans like auto & credit card loans
4. Interbank loans
5. Other types, including loans for purchase of other securities
✔✔Composition of Loan Portfolios - ✔✔Commercial Banks: traditionally made loans
primary to businesses (no longer true), until financial crisis... were involved in real estate
but have now reduced that
Credit Unions and S&Ls: specialize in consumer loans
✔✔Mortgage-Backed Securities - ✔✔meant that banks could sell mortgage loans they
made, which reduced risk of illiquid assets
✔✔Liabilities - ✔✔banks get funds from savers & from borrowing in the financial market
✔✔Types of Deposit Accounts - ✔✔transaction accounts (checkable deposits) & non-
transaction accounts
✔✔Checkable Deposits - ✔✔- demand deposits make up largest part of checkable
deposits
- financial innovation reduced importance of checkable deposits
✔✔Non-transaction Deposits - ✔✔- savings deposit popular for decades, but not so
much today
- time deposits are certificates of deposits (CDs) with a fixed maturity... large CDs have
important role in bank financing
✔✔Borrowings - ✔✔- banks can borrow through: Federal Reserve (rare) or other banks
- banks with excess reserves will lend their surplus funds to banks that need them
through an interbank market (federal funds market)
AND SOLUTIONS GUARANTEE A+
✔✔Banking - ✔✔combination of businesses designed to deliver the services already
discussed
- linking borrowers and savers
- processing info
- diversification of risk
- payments & liquidity
✔✔???
In the last 30 years, the number of banks with branches has ____________, while the
number of unit banks has ______________. - ✔✔increased; decreased
✔✔Big 4 Banks - ✔✔U.S. banking system dominated by small # of really large banks...
Bank of America, JP Morgan Chase, Citigroup, Wells Fargo
✔✔McFadden Act - ✔✔required that nationally chartered banks meet the branching
restriction of the states in which they were located
- most states have laws forbidding branch banking... results in large number of small
banks
- prohibited inter-state banks (could only branch in one state)
- fear that large banks would drive small banks out of business, reducing banking quality
in smaller communities (fragmented banking system nearly devoid of large institutions)
✔✔Glass-Steagall Act - ✔✔- created Federal Deposit Insurance Corporation (FDIC)...
provided insurance to individual depositors, so they would not lose their savings in the
event that a bank failed
- prohibited commercial banks from engaging in insurance & securities business
- restricted bank assets to certain approved forms of debt
- prohibited banks from paying interest on demand deposits
- imposed maximum interest rates for savings accounts... led to things like money
market funds
✔✔3-6-3 Rule - ✔✔pay 3% interest to depositors, charge 6% interest to borrowers, be
on golf course by 3:00
- bank regulations limited what banks could do, therefore eliminating competition
between then... easy life for bankers but not good for society
✔✔???
The majority of banks have a _____________. - ✔✔state charter
✔✔Economies of Scope - ✔✔"cross-selling", recognizing to spread out & diversify
products (ex: don't make 10 mil Corollas, make 1 mil Corollas & then diff. type of car)
,✔✔Riegle-Neal Act - ✔✔repealed McFadden Act's prohibition of interstate branching
✔✔Gramm-Leach-Biley Act - ✔✔repealed Glass-Steagall Act's prohibition of mergers
between commercial banks & insurance companies or security firms
✔✔Dodd-Frank Act - ✔✔aims to prevent financial crises & govt. bailouts of
intermediaries, partly through govt. oversight of systematically important financial
institutions
✔✔???
The U.S. has many banks because: - ✔✔many states outlawed bank branching
✔✔Balance Sheet of Commercial Banks - ✔✔difference between a bank's assets and
liabilities is the bank's capital or net worth(value of bank to its owners)... A-L=E
✔✔Bank's Profits - ✔✔come from both service fees & from difference between what it
pays for its liabilities & the return it receives on its assets
✔✔Income Statement - ✔✔Profits = Revenue - Costs
✔✔Balance Sheet - ✔✔Assets = Liabilities + Equity
✔✔Assets & Profits - ✔✔a bank loans money (assets) and ideally makes more money
than it pays to its creditors (liabilities)
✔✔Assets - ✔✔-asset side of balance sheet shows what banks do with funds they raise
- assets into 4 categories: cash, securities, loans, all other assets
✔✔Cash - ✔✔most liquid of bank's assets
Three Types:
- reserves
- cash items in process of collection
- balances of accounts that banks hold at other banks
✔✔Reserves - ✔✔most important, regulations require certain % of cash held in
reserves, includes... cash in bank's vault, vault cash, & bank's deposits at Federal
Reserve
✔✔Cash Items in Process of Collection - ✔✔uncollected funds from checks
✔✔Balances of Accounts that Banks Hold at Other Banks - ✔✔small banks have
accounts at large banks (correspondent bank deposits), banks want to minimize cash
holdings because they earn less on cash
, ✔✔Securities - ✔✔- since banks cannot hold stocks, these are only bonds
- split between U.S. govt. & agency securities, other securities (state & local govt.
bonds)
- *about half of all securities are mortgage-backed
- sizable portion are very liquid, sometimes referred to as secondary reserves
✔✔Loans - ✔✔primary assets of modern banks (account for well over 50% of assets), 5
loan types differ in their liquidity
✔✔Five Categories of Loans - ✔✔1. Business loans called commercial & industrial
loans (C&I loans)
2. Real estate loans including both home & commercial mortgages & home equity loans
3. Consumer loans like auto & credit card loans
4. Interbank loans
5. Other types, including loans for purchase of other securities
✔✔Composition of Loan Portfolios - ✔✔Commercial Banks: traditionally made loans
primary to businesses (no longer true), until financial crisis... were involved in real estate
but have now reduced that
Credit Unions and S&Ls: specialize in consumer loans
✔✔Mortgage-Backed Securities - ✔✔meant that banks could sell mortgage loans they
made, which reduced risk of illiquid assets
✔✔Liabilities - ✔✔banks get funds from savers & from borrowing in the financial market
✔✔Types of Deposit Accounts - ✔✔transaction accounts (checkable deposits) & non-
transaction accounts
✔✔Checkable Deposits - ✔✔- demand deposits make up largest part of checkable
deposits
- financial innovation reduced importance of checkable deposits
✔✔Non-transaction Deposits - ✔✔- savings deposit popular for decades, but not so
much today
- time deposits are certificates of deposits (CDs) with a fixed maturity... large CDs have
important role in bank financing
✔✔Borrowings - ✔✔- banks can borrow through: Federal Reserve (rare) or other banks
- banks with excess reserves will lend their surplus funds to banks that need them
through an interbank market (federal funds market)
