商业银行管理 ROSE 7e 课后答案chapter05.docx

商业银行管理 ROSE 7e 课后答案chapter05.docx

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商业银行管理ROSE7e课后答案chapter05

CHAPTER5

THEFINANCIALSTATEMENTSOFBANKSANDTHEIRPRINCIPALCOMPETITORS

GoalofThisChapter:

Thepurposeofthischapteristoacquaintthereaderwiththecontent,structureandpurposeofbankfinancialstatementsandtohelpmanagersunderstandhowinformationfrombankfinancialstatementscanbeusedastoolstorevealhowwelltheirbanksareperforming.

KeyTopicsinthisChapter

∙AnOverviewoftheBalanceSheetsandIncomeStatementsofBanksandOtherFinancialFirms

∙TheBalanceSheetorReportofCondition

∙AssetItems

∙LiabilitiyItems

∙RecentExpansionofOff-BalanceSheetItems

∙TheProblemofBook-ValueAccountingand‘WindowDressing’

∙ComponentsoftheIncomeStatement:

RevenuesandExpenses

ChapterOutline

I.Introduction:

TheStatementsWeWillReviewinThisChapter

II.AnOverviewofBalanceSheetsandIncomeStatements

III.TheBank'sBalanceSheet（ReportofCondition）

A.ThePrincipalTypesofAccountsonaBank'sReportofCondition

B.BankAssets

1.CashandDuefromDepositoryInstitutions

2.Securities:

TheLiquidPortion

3.InvestmentSecurities:

TheIncome-GeneratingPortion

4.TradingAccountAssets

5.FederalFundsSoldandSecuritiesPurchasedunderResaleAgreements

6.LoansandLeases

7.LoanLosses

8.SpecificandGeneralReserves

9.InternationalLoanReserves

10.UnearnedDiscountIncome

11.Nonperforming（noncurrent）Loans

12.BankPremisesandFixedAssets

13.OtherRealEstateOwned（OREO）

14.GoodwillandOtherIntangibleAssets

15.AllOtherAssets

C.BankLiabilities

1.Deposits

2.BorrowingsfromNondepositSources

3.EquityCapitalAccounts

a.PreferredStock

b.CommonEquity

D.ComparativeBalance-SheetRatiosforDifferentSizeBanks

E.RecentExpansionofOff-Balance-SheetItemsinBanking

F.TheProblemofBook-ValueAccountinginBanking

G.Auditing:

AssuringReliabilityofFinancialStatements

IV.ComponentsoftheIncomeStatement（ReportofIncome）

A.FinancialFlowsandStocks

1.InterestIncome

2.InterestExpenses

3.NetInterestIncome

4.Loan-LossExpense

5.NoninterestIncome

6.NoninterestExpenses

7.NetOperatingIncomeandNetIncome

B.ComparativeIncome-StatementRatiosforDifferent-SizeBanks

V.TheFinancialStatementsofLeadingNonbankFinancialFirms:

AComparisontoBankStatements

VI.AnOverviewofKeyfeaturesofFinancialStatementsandTheirConsequences

VII.SummaryoftheChapter

ConceptChecks

5-1.Whataretheprincipalaccountsthatappearonabank'sbalancesheet（orReportofCondition）?

Theprincipalassetitemsonabank'sReportofConditionareloans,investmentsinmarketablesecurities,cash,andmiscellaneousassets.Theprincipalliabilityitemsaredepositsandnondepositborrowingsinthemoneymarket.Equitycapitalsuppliedbythestockholdersroundsoutthetotalsourcesoffundsforabank.

5-2.Whichaccountsaremostimportantandleastimportantontheassetsideofabank'sbalancesheet?

TherankorderofassetsbydollarvolumeappearingonU.S.bankbalancesheetsareasfollows:

RankOrderAssets

1Loans

2InvestmentSecurities

3Cash

4MiscellaneousAssets

5-3.Whataccountsaremostimportantontheliabilitysideofabalancesheet?

Theprincipalbankliabilityitemsfrommostimportanttoleastimportantare:

RankOrderLiabilitiesandEquityCapital

1Deposits

2NondepositBorrowings

3EquityCapital

4MiscellaneousLiabilities

5-4.Whataretheessentialdifferencesbetweendemanddeposits,savingsdeposits,andtimedeposits?

Demanddepositsareregularcheckingaccountsagainstwhichacustomercanwritechecksormakeanynumberofpersonalwithdrawals.RegularcheckingaccountsdonotbearinterestundercurrentU.S.lawandregulation.Savingsdepositsbearinterest（normally,theycarrythelowestratepaidonbankdeposits）butmaybewithdrawnatwill（thoughabankusuallywillreservetherighttorequireadvancenoticeofaplannedwithdrawal）.Timedepositscarryafixedmaturityandthebankmayimposeapenaltyifthecustomerwithdrawsfundsbeforethematuritydateisreached.Theinterestratepostedontimedepositsisnegotiatedbetweenthebankanditsdepositcustomerandmaybeeitherfixedorfloating.ANOWaccountcombinesfeaturesofasavingsaccountandacheckingaccount,whileamoneymarketdepositaccountencompassestransactionalpowerssimilartoaregularcheckingaccount（thoughusuallywithlimitationsonthenumberofchecksordraftsthatmaybewrittenagainsttheaccount）butalsoresemblesatimedepositwithaninterestratefixedforabriefperiod（suchasweekly）butthenbecomeschangeableoverlongerperiodstoreflectcurrentmarketconditions.

5-5.Whatareprimaryandsecondaryreservesandwhataretheysupposedtodo?

Primaryreservesconsistofcash,includingabank'svaultcashandcheckabledepositsheldwithotherbanksoranyotherfundssuchasreserveswiththeFederalReservethatareaccessibleimmediatelytomeetdemandsforliquiditymadeagainstthebank.Secondaryreservesconsistofassetsthatpaysomeinterest（thoughusuallypayreturnsthataremuchlowerthanearnedonotherassets,suchasloans）buttheirprincipalfeatureisreadymarketability.MostSecondaryreservesaremarketablesecuritiessuchasshorttermgovernmentsecuritiesandprivatesecuritiessuchascommercialpaper.Bothprimaryandsecondaryreservesareheldtokeepthebankinreadinesstomeetdemandsforcash（liquidity）fromwhateversourcethosedemandsmayarise.

5-6.Supposethatabankholdscashinitsvaultof$1.4million,short-termgovernmentsecuritiesof$12.4million,privatelyissuedmoneymarketinstrumentsof$5.2million,depositsattheFederalReservebanksof$20.1million,cashitemsintheprocessofcollectionof$0.6million,anddepositsplacedwithotherbanksof$16.4million.Howmuchinprimaryreservesdoesthisbankhold?

Insecondaryreserves?

Thebankholdsprimaryreservesof:

VaultCash+DepositsattheFed+CashItemsinCollection+DepositsWithOtherBanks

=$1.4mill.+$20.1mill.+$0.6mill.+$16.4mill.

=$38.5million

Thebankhassecondaryreservesof:

Short-termGovernmentSecurities+PrivateMoney-MarketInstruments

=$12.4mill.+$5.2mill.

=$17.6million

5-7.Whatareoff-balance-sheetitemsandwhyaretheyimportanttosomefinancialfirms?

Off-balance-sheetitemsareusuallytransactionsthatgeneratefeeincomeforabank（suchasstandbycreditguarantees）orhelphedgeagainstrisk（suchasfinancialfuturescontracts）.Theyareimportantasasupplementtoincomefromloansandtohelpabankreduceitsexposuretointerest-rateandothertypesofrisk.

5-8.Whyarebankaccountingpracticesunderattackrightnow?

Inwhatwayscouldfinancialinstitutionsimprovetheiraccountingmethods?

Thetraditionalpracticeofbankshasbeentorecordthevalueofassetsandliabilitiesattheirvalueonthedaytheaccountswereoriginallycreatedandnotchangethosevaluesoverthelifeoftheaccount.TheSECandFASBstartedquestioningthispracticeinthe1980’sbecausetheywereconcernedthatinvestorsInbanksecuritieswouldbemisledaboutthetruevalueofthebank.Usingthishistoricalvalueaccountingmethodmayinfactconcealabankthatinsolventinacurrentmarketvaluesense.Thebiggestcontroversycenteredonthebanks’investmentportfoliowhichwouldappeartobeeasytovalueatitscurrentmarketprice.Ataminimum,bankscouldhelpthemselvesbymarkingtheirinvestmentportfoliotomarket.Thiswouldgiveinvestorsanindicationofthetruevalueofthebank’sinvestmentportfolio.Bankscouldalsoconsiderusingthelowerofhistoricalormarketvalueforotheraccountsonthebalancesheet.

5-9.WhataccountsmakeuptheReportofIncome（incomestatement）ofabank?

TheReportofIncomeincludesallsourcesofbankrevenue（loanincome,investmentsecurityincome,revenuefromdepositservicefees,trustfees,andmiscellaneousserviceincome）andallbankexpenses（includinginterestonallborrowedfunds,salaries,wages,andemployeebenefits,overheadcosts,loan-lossexpense,taxes,andmiscellaneousoperatingcosts.）Thedifferencebetweenoperatingrevenuesandexpenses（includingtaxobligations）isreferredtoasnetincome.

5-10.InrankorderwhatarethemostimportantrevenueandexpenseitemsonaReportofIncome?

Bydollarvolumeinmostrecentyearstherankorderoftherevenueandexpenseitemsonabank'sReportofIncomeis:

RankOrderRevenueItemsExpenseItems

1LoanIncomeDepositInterest

2SecurityIncomeInterestonNondepositBorrowings

3ServiceChargesonDepositsSalaries,Wages,and

andOtherDepositFeesEmployeeBenefits

4OtherOperatingRevenuesMiscellaneousExpenses

5-11.WhatistherelationshipbetweentheProvisionforLoanLossesonabank'sReportofIncomeandtheAllowanceforLoanLossesonitsReportofCondition?

Grossloansequalthetotalofallloanscurrentlyoutstandingthatarerecordedonthebank'sbooks.Netloansareequaltogrossloanslessanyinterestincomeonloansalreadycollectedbythebankbutnotyetearnedandalsolesstheallowanceforloan-lossaccount（orbad-debtreserve）.Theallowanceforloanlossesisbuiltupgraduallyovertimebyanannualnoncashexpenseitemthatischargedagainstthebank'scurrentincome,knownastheProvisionforLoanLosses.Thedollaramountoftheannualloan-lossprovisionplustheamountofrecoveredfundsfromanyloanspreviouslydeclaredworthless（chargedoff）lessanyloanschargedoffasworthlessinthecurrentperiodisaddedtotheallowance-for-loan-lossesaccount.Ifcurrentcharge-offsofworthlessloansexceedtheannualloan-lossprovisionplusanyrecov