978-1133494683 Chapter 1 Solution Manual

Answers to End-of-Chapter Questions

1.

Goldman Sachs – Converted to a bank holding company.

Bear Stearns – Acquired by J.P. Morgan Chase.

2.

Mortgages are loans that are secured by residential or commercial real estate. As real

Subprime loans are loans made to borrowers with low credit scores and thus a

Asset writedowns are when a financial institution formally recognizes that loans they hold

3. A bank holding company is essentially a shell organization that owns and manages subsidiary firm.

Any organization that owns controlling interest in one or more commercial banks is a bank holding

company (BHC). One-bank holding companies (OBHCs) control only one bank, while multibank

holding companies (MBHCs) control at least two commercial banks. The motivation behind a BHC

4. S-corporations have favorable tax treatment because a qualifying firm does not pay corporate

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accessible website, in whole or in part.

5. Transactions banking involves the provision of transactions services such as checking accounts, credit

card loans, and mortgage loans that occur with high frequency and exhibit standardized features.

Because the products are highly standardized, they can be evaluated mechanically and require li8le

Relationship banking emphasizes the personal relationship between the banker and customer. For

example, the key feature of a loan that is relationship driven and not transactions driven is that the

lender adds real value to the borrower during the credit granting process. In addition to the

provision of funds, the lender may provide expertise in accounting, business, and tax planning. Loans

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accessible website, in whole or in part.

6.

The Global Consumer & Small Business Banking line of business accounted for 69% of the bank’s

7. I) The TARP program will encourage consolidation, which will sharply reduce the number of

independent commercial banks. II) The increase in problem subprime loans will cause independent

8.

Branch Banking: The two most common types of branches are standalone brick-and-mortar

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accessible website, in whole or in part.

Automated Teller Machines: ATMs are computerized telecommunications systems that offer

limited bank services without direct human involvement. Virtually all ATMs in the U.S. are

Internet (Online) Banking: Most banks allow customers to access their account information

and conduct routine banking business via secured Web sites. Typical services include

Call Centers: These are intended to benefit a bank’s retail customers. A center consists of a

centralized location designed for a bank’s employees to receive and transmit calls. Banks use

Mobile Banking: This allows customers to use of cell phones to conduct banking business.

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accessible website, in whole or in part.