Measuring Bank Performance
1) Most of a bank”s operating income results from
A) interest on assets.
B) service charges on deposit accounts.
C) off balance sheet activities.
D) fees from standby lines of credit.
2) All of the following are operating expenses for a bank except
A) service charges on deposit accounts.
B) salaries and employee benefits.
C) rent on buildings.
D) servicing costs of equipment such as computers.
3) When a bank suspects that a $1 million loan might prove to be bad debt that will have to be written off in the future the bank
A) can set aside $1 million of its earnings in its loan loss reserves account.
B) reduces its reported earnings by $1, even though it has not yet actually lost the $1 million.
C) reduces its assets immediately by $1 million, even though it has not yet lost the $1 million.
D) reduces its reserves by $1 million, so that they can use those funds later.
4) For banks,
A) return on assets exceeds return on equity.
B) return on assets equals return on equity.
C) return on equity exceeds return on assets.
D) return on equity is another name for net interest margin.