Bank Capital Planning Quiz

What is the primary focus of capital planning in banks?

• Market Risk

• Tier 1 Capital

• Tier 2 Capital

• Retained Earnings

Which of the following is NOT a function of bank capital?

• Increase in market share

• Demonstrates shareholder commitment

• Source of long-term funding

• Buffer against unexpected losses

What does the term 'leverage ratio' refer to in banking?

• Total assets divided by equity capital

• Total liabilities divided by equity capital

• Equity capital divided by total assets

• Risk-weighted assets divided by total capital

Which type of capital is considered Tier 1 capital?

• Ordinary shares

• Subordinated debt

• Mandatory convertible notes

• Cumulative preference shares

What is the main characteristic of Tier 2 capital?

• It ranks behind the claims of depositors

• It has all essential characteristics

• It is freely available to absorb losses

• It has some essential characteristics

What does the Internal Capital Generation Rate (ICGR) measure?

• The dividend payout ratio

• The rate of return on assets

• The asset growth rate supported by internal capital

• The total capital of the bank

Which of the following is a source of internally generated capital?

• Mandatory convertible notes

• Subordinated debt

• Retained earnings

• New share issues

What is the effect of a lower level of equity capital on a bank?

• Decreases regulatory compliance costs

• Increases market discipline

• Increases the risk of insolvency

• Decreases capital risk

What is the primary goal of selecting a capital target?

• To maximize shareholder wealth

• To minimize regulatory costs

• To reduce operational risk

• To increase market share

Which theory suggests that shareholders prefer high dividends to reduce agency costs?

• Clientele theory

• Signaling theory

• Agency costs theory

• Modigliani and Miller theory