1. When considering an institution’s capital plan, the Federal Reserve considers only quantitative factors. The only factor that matters is a firm’s capital ratios under severe economic and financial market stress. After the Federal Reserve objects to a capital plan, the institution may only make capital distributions that are equal to the distributions made in the previous year.

True/False

2. A bank that funds a portfolio of assets with higher credit risk than another bank has to have more equity capital if creditors are to be indifferent between lending to either bank.

True/False

3. Bank holding companies can issue common stock to raise equity capital.

True/False

4. The interest rate spread between 3 month financial commercial paper and 3 month constant maturity treasury securities declined from 160 basis points on June 15th, 2007 to 58 basis points on August 24, 2007. This is because the Fed was active in adding reserves to the banking system.

True/False