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// EXAM HALL24 QUESTIONS · 30 MINUTES

How Banks Work Practice Test

How a bank makes its money, one product launch seen from four desks, and the calls each of those desks makes.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A how banks work practice test checks that you understand the business you are joining, whatever your seat. This paper is written for legal, people, marketing and procurement candidates. It has three parts: how a bank earns its money and why it is regulated; one home loan launch, read from four desks, set on an exhibit; and calls each of those desks makes. It tests the bank's side of these jobs, not the law or the craft behind them. Every question is original, and none comes from any bank's test. Sit it against a thirty-minute clock, or take it as practice.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// HOW TO SIT IT

Answer below as practice, and each read opens as you go. Or sit it as a test: 30 minutes, with every read held back until you finish.

PART A

The business of a bank

What you are joining, whichever seat you sit in.

PART A · QUESTION 1

A bank pays 3% on deposits and lends them out at 6%. Its running costs are 1.5% of its loans, and it expects to lose 0.3% of them a year.

What does it keep on each US$100 lent, before tax?

PART A · QUESTION 2

A bank has US$100 of assets and US$8 of capital. A retailer with the same assets might have US$40 of capital.

What does a 5% fall in the value of its assets do to the bank's capital?

PART A · QUESTION 3

A friend asks why a bank has so many rules compared with a supermarket. Both have customers, suppliers and shareholders.

What is the best short answer?

PART A · QUESTION 4

Two loans earn the same margin. One is a company loan that needs three times the capital of the other, a well-secured home loan.

Which earns the bank more on its capital?

PART A · QUESTION 5

A bank's loans reprice every five years on average; its deposits reprice within one. Rates rise by one percentage point tomorrow.

What happens to its net interest income next year?

PART A · QUESTION 6

A bank's deposits have been steady for years. This month, after a rival's failure made the news, online withdrawals doubled in two days.

Signal or noise?

PART B

The launch

One product, ten questions, from marketing, legal, people and procurement. Read it as your own desk would, then as the others would.

EXHIBIT M · THE LAUNCH BRIEF

A retail bank plans a home loan offer. This brief has reached your desk, whichever seat you sit in. It launches on Friday week.

AreaWhat the brief says
OfferUS$3,000 cashback on new home loans over US$300,000, at 5.49% fixed for the first year.
AdvertHeadline: 'The lowest home loan rate in town. Guaranteed approval in 24 hours.' Below it, 5.49% in large type. On the website only, in small print: after year one the rate reverts to 7.29%.
TermsThe whole cashback must be repaid if the loan ends within three years, for any reason.
SalesBankers earn US$150 for each loan written. The scheme has no measure of file quality or complaints.
SupplierA call centre abroad will take enquiries and hold 400,000 customer records. Its price is 18% below the next bid. The contract runs five years, renews itself, and gives the bank no right to leave.
PART B · QUESTION 7

You are in marketing, reading Exhibit M. The headline says 'The lowest home loan rate in town'.

What is your first question?

BACK TO EXHIBIT M ↑
PART B · QUESTION 8

Exhibit M's headline also says 'Guaranteed approval in 24 hours'.

What is wrong with it?

BACK TO EXHIBIT M ↑
PART B · QUESTION 9

In Exhibit M, the 7.29% reverting rate appears only in the website's small print. The advert shows 5.49% in large type.

What is the honest fix?

BACK TO EXHIBIT M ↑
PART B · QUESTION 10

You are in legal. Under Exhibit M's terms the whole cashback comes back if the loan ends within three years, on any ground, including a sale forced by redundancy or divorce.

What do you advise?

BACK TO EXHIBIT M ↑
PART B · QUESTION 11

Exhibit M launches on Friday week. Today the business asks for your legal sign-off 'by tomorrow', and says the terms were drafted from last year's offer.

What do you do?

BACK TO EXHIBIT M ↑
PART B · QUESTION 12

You are a people partner. In Exhibit M, bankers earn US$150 per loan, with no measure of file quality or complaints.

What do you push for?

BACK TO EXHIBIT M ↑
PART B · QUESTION 13

You are in procurement. In Exhibit M, the call centre's price is 18% below the next bid, and it will hold 400,000 customers' records abroad.

What do you look at first?

BACK TO EXHIBIT M ↑
PART B · QUESTION 14

Exhibit M's supplier contract runs five years, renews itself, and gives the bank no way out.

What do you change?

BACK TO EXHIBIT M ↑
PART B · QUESTION 15

Take Exhibit M's offer, and suppose the average loan is US$400,000 and the bank's margin on it after funding is 1.8% a year.

How long does the margin take to repay the US$3,000 cashback, before any other cost?

BACK TO EXHIBIT M ↑
PART B · QUESTION 16

In Exhibit M, four teams have concerns: marketing's claim, legal's term, the incentive and the supplier. The launch is a week off, and the product head says: 'Nobody has said no.'

What should happen?

BACK TO EXHIBIT M ↑

PART C

Four desks' calls

The calls these seats make in a bank, and would not make the same way elsewhere.

PART C · QUESTION 17

You are in-house counsel. A loan's security over a property was signed correctly but not registered. The banker says: 'We have the signed document. We are covered.'

What do you tell them?

PART C · QUESTION 18

The business asks if a new product is allowed. The rules are new, there is no case law, and your honest view as counsel is 'probably yes'.

How do you answer?

PART C · QUESTION 19

Your bank's top-earning banker has been rude to junior staff for years. Two have left, and a third has made a complaint. The division head says: 'That is just how the best ones are.'

As people partner, what do you do?

PART C · QUESTION 20

A leader wants to hire quickly for a credit team, and asks you to skip the reference and conduct checks for someone they have worked with before: 'I can vouch for them.'

What do you do?

PART C · QUESTION 21

Your bank's honest message for a basic savings account is 'a fair rate, no fees, easy to get at'. The agency proposes 'Watch your money grow like never before'.

What do you do?

PART C · QUESTION 22

The data team can target a credit card offer at customers whose accounts are often overdrawn, because they respond best. It would be your most efficient campaign of the year.

What do you do?

PART C · QUESTION 23

Your bank's core payments vendor is one of only two in the market. It has just raised its renewal price by 30%, and says the terms are standard.

As procurement lead, what do you do?

PART C · QUESTION 24

The press reports that a critical software supplier is short of cash. Its service runs your mortgage platform. Your contract is in good order, and its support is still fine.

What do you do?

0 OF 24 ANSWERED · 0 WITH THE SENIOR READ · 0 STANDS UP · 0 OFF THE LINE

// THE REST OF THE ROUND

Every question here is original; none is any bank's real test. Written for: Legal counsel, People partner, Marketing manager, Procurement manager.