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Finance
Q:
Securitization has not "caught on" in the thrift industry.
Q:
Mortgages remain the most important asset of savings institutions.
Q:
Adjustable rate mortgages insulate thrifts against risk.
Q:
Congress gave thrifts the right to make consumer loans so they could diversify their assets and shorten their asset durations.
Q:
The Office of Thrift Supervision is the principal federal regulator of S&Ls.
Q:
The Federal Savings and Loan Insurance Corporation insures deposits of S&Ls.
Q:
Thrifts assume interest rate risk because maturities of their liabilities and assets are typically unmatched.
Q:
Federal Home Loan Banks were disbanded year s ago.
Q:
"Negative maturity GAP" S&Ls may actually profit in a recession.
Q:
Federal Home Loan Banks are among the regulators of savings institutions.
Q:
S&Ls were originally established to take advantage of a tax loophole.
Q:
"Mutual" institutions are owned by their depositors.
Q:
In recent years, the Federal Government implements some important regulations to deal with the volatility in financial markets. Please explain what do the following acts do to financial markets: the Financial Services Regulatory Relief Act of 2006 and the Emergency Economic Stabilization Act in 2008?
Q:
Describe three methods by which the FDIC may handle a failed bank. Which method do you believe is of most benefit to depositors? Which of these methods causes a moral hazard? Explain.
Q:
Explain why depository institutions are today the most regulated firms in the financial services industry.
Q:
In recent years, know-your-clients (KYC) is required by international financial regulators. In the U.S., what is the act that requires financial institutions to share information about customer identities with appropriate government agencies?
a. The USA Patriot Act
b. The Sarbanes-Oxley Act
c. The 9/11 Act
d. The U.S. Treasury Department Act
e. The Gramm-Leach-Bliley Act
Q:
In 1999, the law that allows banks to affiliate with insurance companies and investment banks to form financial services conglomerates is
a. The Gramm-Leach-Bliley Act (Financial Services Modernization Act)
b. The National Banking Act
c. The Glass-Steagall Act
d. The Garn-St. Germain Act
e. The Riegle Neal Interstate Banking Act
Q:
In 1994, the law that allowed bank holding companies to acquire banks anywhere in the U.S. is:
a. The Glass-Steagall Act
b. The Federal Deposit Insurance Corporation Improvement Act
c. The Federal Reserve Act
d. The Riegle-Neal Interstate Banking and Branching Efficiency Act
e. The National Bank Act
Q:
An institutional arrangement in which federal and state authorities both have significant bank regulatory powers is referred to as:
a. Dual Banking System
b. Balance of Power
c. Federalism
d. Cooperative Regulation
e. Coordinated Control
Q:
Why financial institutions are highly regulated in all countries?
a. Financial institutions are the major collectors of the public's savings.
b. Financial institutions have the power to create money.
c. Financial institutions provide businesses and individuals with loans that support consumption and investment spending.
d. Financial institutions assist governments in conducting economic policy, collecting taxes and dispensing government payments.
e. All of the above.
Q:
Most depository institutions are regulated in some way or to some extent by
a. the Fed
b. the FDIC
c. both of the above
d. none of the above
Q:
A national bank is regulated in some way or to some extent by
a. the Fed
b. the OCC
c. the FDIC
d. all of the above
Q:
A state-chartered bank which is not a member of the Federal Reserve System will
never be examined by the
a. state banking authority
b. FDIC
c. OCC
d. Fed
Q:
Although the FDIC does not charter depository financial institutions, it is said to have considerable influence in an institution's application for chartering because
a. the FDIC establishes the types of deposit accounts that financial institutions can offer.
b. the FDIC reviews all bank charter applications.
c. chartering criteria include eligibility for deposit insurance.
d. the FDIC advises the Fed as to which banks it should charter.
Q:
Which of the following regulators is also the lender of last resort?
a. FDIC
b. Office of Comptroller of Currency
c. Office of Thrift Supervision
d. Federal Reserve System
Q:
All but one of the followingis an example of safety and soundness regulation:
a. Consumer Credit Protection Act of 1968
b. Banking Act of 1933 (Glass-Steagall)
c. FDIC Improvement Act of 1991
d. FIRRE Act of 1989
Q:
If the regulated financial institutions are able to encourage their regulator to serve the industry's interest over the public's interest, what has occurred?
a. regulatory representation
b. regulatory capture
c. regulatory acquisition
d. regulator-regulated negotiation
Q:
Deposit insurance has a moral hazard associated with it because it offers an incentive by which of the following groups not to be concerned with how the bank is managed?
a. insured depositors
b. uninsured depositors
c. stockholders
d. subordinated creditors
Q:
A major deposit insurance reform of 2005 was to
a. encourage S&Ls to convert their charters to commercial banks.
b. reduce deposit insurance premiums
c. merge BIF and SAIF into DIF
d. merge FDIC and NCUSIF
Q:
If FDIC tends to charge depository institutions less than the full cost of deposit insurance in its risk-based deposit premium system,
a. the banks will be upset with FDIC.
b. the risk-based premium system will adequately "tax" the excess risk returns of banks that have made risky investments.
c. the moral hazard associated with deposit insurance is still present.
d. the regulator will not have to worry about banks taking excessive risk.
Q:
The "market" disciplines banks for assuming excessive risk levels by
a. driving up deposit insurance premiums
b. denying job opportunities to managers who take risks
c. pricing nondeposit financial claims accordingly
d. refusing to demand loanable funds from risky banks
Q:
In a bank examination, the most important area of the CAMEL analysis is
a. bank capital.
b. liquidity.
c. asset quality.
d. management competency.
Q:
Bank structure might be more competitive if:
a. bank charters were more difficult to obtain.
b. banks could establish branches in response to customer demographics rather than to political boundaries.
c. large bank mergers were encouraged.
d. bank holding companies were prohibited from entering nonbanking businesses.
Q:
A bank holding company may, under the Financial Services Modernization Act, purchase an insurance underwriting subsidiary if:
a. the state insurance commissioner approves of the merger.
b. the bank holding company is well capitalized.
c. the bank holding company does business in the states where the insurance company is licensed.
d. the holding company applies to the Fed and becomes a financial holding company.
Q:
If bank managers lobby to maintain America's traditional "dual banking" structure, they:
a. want an option of either federal or state bank chartering.
b. want to maintain the right to make loans and take deposits.
c. want the right to fight competition.
d. want the option of remaining a bank or a bank holding company.
Q:
If the cost of an FDIC insurance payoff is $20 million and the cost of the financial assistance for a purchase and assumption is $15 million, the FDIC is likely to:
a. pay off depositors of the failed bank.
b. establish a Deposit Insurance National Bank.
c. ask Congress for assistance.
d. encourage a purchase and assumption of the failed bank by a healthy bank.
Q:
The presence of moral hazard incentives
a. reduces the need for close regulatory supervision.
b. increases the need for more regulations, examinations, and regulators.
c. reduces the church attendance rate of bank managers.
d. increases the role of markets in disciplining excessive risk-taking.
Q:
The purpose of a bank examination is to
a. verify the bank's financial statements according to generally accepted accounting principles.
b. maintain proper control of the bank by FDIC.
c. promote and safety, soundness, and compliance with regulations.
d. make sure the bank is not taking any risk.
Q:
Most U.S. banking regulation focuses on
a. price control
b. consumer protection
c. safety and soundness
d. workplace safety
Q:
The experiences of the early 1930s taught bank regulators to respond to widespread economic panic with
a. restricted bank liquidity and increased bank capital requirements.
b. increased availability of liquidity and interbank guarantees of deposits.
c. increased availability of liquidity and federal guarantees for bank deposits.
d. restricted money supply and lowered interest rates.
Q:
Regulatory balance sheet restrictions are designed to
a. encourage high risk-taking by proper diversification.
b. limit proper diversification.
c. limit risk-taking and encourage diversification.
d. limit the size of depository institutions.
Q:
All of the following are reasons to regulate depository institutions except:
a. To promote safety and soundness.
b. To affect the structure of banking.
c. To make sure bank capital ratios are competitive.
d. To protect the interest of consumers.
Q:
The most significant cause of bank failure today is:
a. bank depositor panics.
b. economic recession.
c. insufficient bank regulation.
d. fraud, embezzlement, and poor management practices.
Q:
Private or state deposit insurance funds have not successfully prevented panic because
a. the size of the funds was more than enough to pay all depositors.
b. they overcharged the institutions on their premiums.
c. they did not have a "deep pocket" with unlimited borrowing power like Congress behind them.
d. the regulation of the depositors was not as restrictive as it should have been.
Q:
Moral hazard incentives for undesirable manager behavior may have been created by
a. a "too big to fail" policy.
b. a flat proportional premium charge to banks and thrifts for deposit insurance.
c. regulatory accounting practices, which inflated capital ratios.
d. all of the above
Q:
Financial institutions are regulated for the following reason(s):
a. they provide essential financial services to consumers and businesses.
b. there is a need to control the money supply.
c. government has promised to insure deposits.
d. all of the above
Q:
Federal deposit insurance has
a. prevented bank depositor panics, but not bank failures.
b. prevented bank panic and bank failures.
c. prevented bank failures, but not bank depositor panic.
d. not prevented bank depositor panics, but has eliminated bank failures.
Q:
Which bank regulatory agency charters national banks?
a. the Comptroller of the Currency
b. the Federal Reserve
c. the FDIC
d. individual state agencies
Q:
The moral hazard problem of federal deposit insurance is most associated with:
a. the competitiveness of financial services markets.
b. the incentives of managers.
c. the high salaries paid to managers.
d. the fear of loss by most depositors.
Q:
Which bank regulatory agency regulates bank holding companies?
a. the Comptroller of the Currency
b. the Federal Reserve System
c. the FDIC
d. individual state agencies
Q:
Bank failures are considered to be more important to the economy because
a. failure of a single bank induces fear about the solvency of other banks.
b. they reduce the money supply in the economy.
c. a large number of people in a community lose their liquid wealth.
d. all of the above
Q:
Nonfederal deposit insurance arrangements have failed primarily because
a. not all banks participated.
b. the amount of the deposit funds were not adequate.
c. there was never a "deep pocket" backing such as the Federal Reserve System to prevent bank panics in the first place.
d. the FDIC worked hard to undermine the confidence in the nonfederal insurance arrangements.
Q:
In a purchase and assumption of a failed bank, an assuming bank may be required to invest funds for all but one of the following reasons:
a. acquire the sound assets of the failed bank
b. acquire the deposit liabilities
c. pay a premium for the intangible value of the bank
d. infuse sufficient cash to provide adequate capitalization.
Q:
The FDIC pays off on a failed bank. Assets are worth $100 million. Insured deposits total $60 million. Uninsured deposits and other unsecured liabilities total $80 million. What proportion of the stockholders' claim of $10 million will be realized in the FDIC payoff?
a. 0%
b. 10%
c. 50%
d. 100%
Q:
The FDIC pays off on a failed bank. Assets are worth $100 million. Insured deposits total $60 million. Uninsured deposits and other unsecured liabilities total $80 million. What proportion of uninsured deposits will be recovered by depositors?
a. 60%
b. 50%
c. 40%
d. 100%
Q:
The FDIC's use of purchase and assumption resolution of failed banks has resulted in de facto 100 percent deposit insurance because
a. all accounts up to $100,000 have been paid off by the FDIC.
b. the assuming bank assumes all deposits of the failed banks.
c. the assuming bank assumes all deposits up to $100,000.
d. the large accounts above $100,000 are assumed by the FDIC.
Q:
In a purchase and assumption of a failed bank, the ________ purchases the ________ of the failed bank and assumes its ________?
a. FDIC; charter; deposit liabilities
b. FDIC; assets; loan payments
c. assuming bank; deposits; assets
d. assuming bank; assets; deposit liabilities
Q:
Most of the banks in the U.S. are _________ chartered, __________ of the Federal Reserve System and are insured by the _________.
a. state; members; FDIC-DIF
b. national; members; OCC-DIF
c. state; nonmember; FDIC-DIF
d. national; member; FRB-DIF
Q:
All but one of the following has deposit insurance for its customers:
a. bank holding companies
b. credit unions
c. commercial banks
d. savings and loan associations
Q:
The original purpose of deposit insurance was to
a. prevent bank runs by large depositors.
b. increase the regulatory monitoring of banks.
c. force the banks to invest in less risky investments.
d. prevent bank panics by insuring the small deposits of many people.
Q:
The maximum amount of FDIC deposit insurance per eligible retirement account is
a. $25,000
b. $50,000
c. $250,000
d. $150,000
Q:
Which of the following is not a regulatory offset to the moral hazard of deposit insurance?
a. risk-based capital standards.
b. risk-based deposit insurance premiums.
c. truth-in-lending regulations.
d. safety and soundness examinations.
Q:
All but one of the following is associated with bank failure:
a. banks hold illiquid assets and reserves that are but a fraction of total deposits.
b. assets may rise in value more quickly than liabilities when interest rates change.
c. excessive loan losses may erode net worth.
d. asset values fall below the value of liabilities.
Q:
Regulations limiting risk taking of financial institutions are imposed because
a. the costs of regulation exceeds the benefits.
b. the private costs of failure exceed the social costs of failure.
c. the social costs of a general bank failure exceed the private costs to shareholders.
d. risk is harmful.
Q:
While an individual bank's illiquidity may cause a bank ______, a general loss of faith in banks' ability to pay is called a _______.
a. loss; run
b. panic; run
c. run; panic
d. payoff; regulatory dialectic
Q:
All but one of the followingis a purpose of regulating financial institutions:
a. to provide stability of the money supply
b. to serve certain social objectives
c. to reduce barriers to entry
d. to offset the moral hazard incentives to protect the deposit insurance fund
Q:
Deposit insurance with constant proportional premiums has
a. prevented bank failures.
b. created a moral hazard associated with increased risk assumption.
c. helped large banks at the expense of small banks.
d. charged increased premiums for increased risk.
Q:
Insurance or a guarantee to cover losses may create a moral hazard
a. which is an increase in the chance that a random accident will occur.
b. which is an incentive to decreased risk-taking by the insured.
c. which is an incentive to increase risk-taking by the insurance authority.
d. which is an incentive to increase risk-taking by the insured.
Q:
Regulations provide financial institutions certain benefits such as
a. reducing the chance of failure.
b. increasing the cost of funds.
c. increased labor cost to comply with regulations.
d. increased profit from the added compliance costs.
Q:
Innovation around regulation followed by new regulation to offset the innovation is
a. moral hazard.
b. the innovation cycle.
c. the regulatory dialectic.
d. securitization.
Q:
Which of the following has influenced U.S. banking structure?
a. concern for concentrated financial power
b. historical experience with bank failures and panics
c. states vs. federal authority
d. all of the above
Q:
Bank capital is the most reliable cushion that prevents a decline in asset values from threatening the integrity of bank deposits.
Q:
The Federal Reserve frequently changes reserve requirements for banks since the impacts of these changes is not big to risk taking behavior of banks.
Q:
In the United States, fixed premium charged for deposit insurance, regardless of risk that banks take, leads to a problem known as moral hazard.
Q:
Safety and soundness regulations promote price competition among banks.
Q:
In a purchase and assumption, the acquiring bank assumes all deposits in the failed bank.
Q:
The Glass Steagall restrictions separating investment and commercial banking were finally repealed in 1999 by Financial Services Modernization Act.
Q:
Regulators have eliminated moral hazard in large bank and thrift firms.
Q:
The Federal Reserve System controls the money supply and is not a bank regulator.
Q:
Bailout of large banks by federal regulators is an example of market discipline.