Can you help me answer these questions?

Question

My teacher has assigned us this hugh packet and i'm having problems finding some of the answers. He gave us slides to work from but doesn't contain all the info. please help me out with this.

1. T or F: Studies have shown a high degree of correlation between bank foreclosures and external economic factors?

2. T or F: State-Chartered banks in the United States represent about one-third of all U.S. chartered banks, while national banks account for approximately two thirds of all U.S. chartered banks.

3. T or F: Earning assets far exceed non-earning assets on most bank balance sheets.

4. T or F: While interest income exceeds interest expense in a bank, the bank's overhead expense is generally higher than free income and other non-interest income.

5. T or F: The federal reserve system controls the money supply and is not a bank regulator publicly available.

Answer 1

1. True. While bank credit screening can help improve loan portfolio quality, foreclosures on defaults is highly correlated to the overall economy. When people and companies are doing well and can't pay, they default and foreclosure rates rise.

2. True. There are numerically much more local, county and state banks than national banks.

3. True. Banks make a living by taking up a basic asset (e.g. cash that has been deposited), reserving only a small amount as required by reserve regulations, loaned back out again. Payments from the loans are sent back in, which is then loaned back out again to someone else. Hence, if you look at a bank's ablance sheet, it's non-earning assets are much smaller than its earning assets.

4. False. Interest Income Less Interest Expense is called the Yield Spread. If the Yield Spread and the Non-Interest Income does not cover the Bank's Overhead, it is making a loss. If this is systemic, the banking system would collapse due to insolvency.

5. False. While the Federal Reserve is a huge component of US government monetary policy through its influence in Fed Rates, the US Treasury controls the actual money supply by issuing cash and more importantly issuing/buying back US bonds.

Answer 2

I couldn't tell you as I'm from the UK, but all the scenarios depicted here are fickle and loosely defined. This means that they are only true/false when circumstances lead to them being so!