Fed Decisions/Impacts
What is the potential effect on bank lending if the Fed cuts rates aggressively in 2025?
Lower policy rates could reduce banks’ cost of funding, potentially encouraging more lending, though demand, credit risk, and capital constraints might moderate the expansion.
What is a “commercial bank”?
A financial institution that accepts deposits, makes loans, and provides basic banking services to individuals, businesses, and governments.
What is “working capital”? Formula and Use.
Current assets minus current liabilities. It’s the capital available for day-to-day operations.
The risk that a borrower or counterparty will fail to meet their debt obligation.
Credit Risk
What is an investment bank?
An investment bank is a financial institution that helps corporations, governments, and other entities raise capital by acting as an intermediary between issuers and investors. They facilitate complex financial transactions like underwriting new securities (stocks and bonds), advising on mergers and acquisitions (M&A), and providing strategic financial advice. Essentially, they help large organizations and governments with big financial deals
As of September 2025, what is the target federal funds rate range set by the Fed?
4.00 % to 4.25 %
What is the difference between a “term loan” and a “revolving credit facility”?
A term loan is a loan for a fixed amount with a set repayment schedule; a revolving credit facility allows the borrower to draw, repay, and redraw up to a maximum credit limit during the term.
Which financial ratio best measures a company’s ability to meet its short-term obligations?
Current ratio
What is an example of foreign currency risk?
Denominated currency weakens overtime.
Which Stock Market Index follows 2,000 small cap companies?
Russell 2,000
What is the Federal Reserve’s “dual mandate”?
To promote maximum employment and stable prices (i.e. control inflation).
What interest rate benchmark replaced the LIBOR?
SOFR (Secured Overnight Financing Rate)
Why do analysts often focus on EBITDA instead of net income when assessing a company’s operating performance?
EBITDA removes financing and accounting distortions to show core operations.
Which ratio is commonly used to assess a bank’s ability to absorb losses — the “leverage ratio” or “risk-weighted capital ratio”?
Risk-weighted capital ratio is used to evaluate capital adequacy relative to all exposures.
Which market benchmark do U.S mortgage rates typically follow?
10-year Treasury
How many Fed officials dissented to the September 2025 rate cut, and what did they prefer?
One Fed official, Stephen I. Miran, dissented. He preferred a larger (0.50%) cut instead of the 0.25% cut.
Why do regulators require banks to maintain minimum capital ratios?
To ensure banks can absorb losses and protect depositors.
Why might a company’s book value of equity differ significantly from its market value of equity?
Because book value reflects historical costs, while market value reflects investors’ expectations of future performance.
What is “duration mismatch” risk in a bank’s balance sheet?
The risk that the durations (interest rate sensitivities) of assets and liabilities are not aligned, leading to losses when rates change.
Citadel (over $300 billions AUM).
What is the expected benchmark rate for the end of 2026 based on previous FOMC discussions?
3.25%-3.50%
What is the primary way banks earn most of their income?
Earning the spread between interest received on loans and interest paid on deposits.
Why might a company with a high return on equity (ROE) still be considered financially risky?
Because it may result from high leverage rather than true operational efficiency.
What is the possible risk to banks’ net interest income if the yield curve inverts?
Inversion may compress net interest margins because banks often borrow short (deposits) and lend long; if short rates exceed long rates, the spread compresses or becomes negative.
Which two banks were recently involved in a acquisition valued at $10.9 billion?
Fifth Third bought Comerica.