The Ultimate How Banks Work Quiz

Staff

What do banks do with the cash we deposit into our accounts?

They take our hard-earned cash, invest it elsewhere and make themselves a nice, tidy profit in kind.

How are banks good for the economy?

Banks sustain a healthy economy, because they create money by providing loans.

Which body determines the amount that banks can lend?

The Federal Reserve determines this amount.

If a bank has a reserve requirement of 10%, how much can it lend out on a $100 deposit?

A 10% reserve requirement means that the bank can lend $90 out of a $100 deposit.

What does "a run on the bank" refer to?

A run on the bank refers to that rare, undesirable event when everyone wants their money at the same time, usually due to lack of trust in the bank.

If the bank is insured, then your money will be safeguarded. Who does it need to be insured by?

The bank must be insured by the Federal Deposit Insurance Corporation (FDIC) in order for you to have your money protected.

Why were commercial banks initially set up?

Commercial banks were set up originally as a banking system catered specifically for businesses.

What market were savings banks intended to serve?

Savings banks were intended to serve low-income workers in order to help them buy homes.

In what way are banks like any other business?

Banks, like any other business, are out to make money. They do this through their "product": money.

If a loan is deemed "risky," what does the bank do regarding the interest rate?

For a "risky" loan, the bank covers itself by charging high interest.

Banks have an arrangement with other banks whereby they charge each other for short-term loans. What is this called?

Inter-bank short-term loans are arranged according to a certain interest. This is called a funds rate.

Supposing you wanted to set up a private bank one day, you need partners. They form the:

Your banking partners in your privately owned bank form the organizing group.

With regard to a bank, what is the purpose of the state or federal charter?

The purpose of the charter is to govern the way that the bank operates.

In the U.S. state of Florida, what is the minimum number of directors you must have to set up a bank?

Other states may differ, but Florida requires a minimum of five directors.

How much stock does a bank holding company hold?

A bank holding company holds a full 25% of stock.

In the state of New York, how much capital is required to start a bank in a metropolitan area?

In a metropolitan area of New York, you'd need at least $10 million to start a bank.

To start a bank, you apply to the Office of the Comptroller of the Currency. If your application is complete, how long does it take to receive a reply?

It can take up to 180 days to get the final word on their decision.

To start your own bank, how important is the name?

The name is pretty important, because it has to be unlike any other bank name and it has to be approved.

Most depositors are usually protected by insurance for up to:

Happily, most depositors are usually protected by insurance for up to $100,000.

How old is the check system of payment?

Checks as a form of payment have been around for hundreds of years. We know for certain that they were in use in the 16th century.

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About This Quiz

How do banks work? Are they to be trusted? And where is your deposited money right now, anyway? Answer this quiz to find out all about how banks work.

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