Q&A Hero

Q: A finance company that makes loans to high risk customers is called a A. subprime lender B. commercial bank C. factor D. warehouse lender E. credit lender

Q: Sales finance companies A. specialize in making loans to customers of a specific retailer or manufacturer. B. specialize in making installments and other loans to whatever consumers are interested. C. specialize in providing loans to businesses. D. specialize in international factoring and forfaiting. E. none of the above

Q: Factoring is A. equipment leasing. B. servicing mortgage factors. C. purchasing corporate accounts receivables at a discount. D. financing automobile purchases. E. making installment loans to customers.

Q: In 2010, _______________ had on average the greatest amount of equity as a percentage of assets and ______________ had the lowest. A. savings institutions; credit unions B. banks; credit unions C. credit unions; finance companies D. finance companies; credit unions E. finance companies; banks

Q: Rank the following from greatest to smallest in terms of industry asset size in 2010. I. Banks II. Savings institutions III. Credit unions IV. Finance companies A. IV, I, II, III B. I, IV, II, III C. I, II, IV, III D. I, II, III, IV E. II, IV, III, I

Q: SI profitability declined in the mid-2000s due to I. the yield curve becoming more positively sloped. II. decreases in the NIM ratio. III. increases in the NIM ratio. IV. the yield curve becoming flatter and even inverted. A. I and II only B. II and III only C. II and IV only D. III and IV only E. I and III only

Q: As a percentage of total assets, credit unions invest _______________ in securities than banks and ______________ in consumer loans than banks. A. more; more B. less; less C. more; less D. less; more E. less; about the same

Q: Credit unions have several advantages over banks. These include I. Credit unions are not taxed. II. Credit unions are better diversified than banks. III. Credit unions can collectively pool funds. IV. Due to regulations, credit unions have better economies of scale and scope than banks. V. Because of their ties to employers credit unions have better personnel expertise than banks. A. I and II only B. I and III only C. III and IV only D. III, IV, and V only E. I, III, and V only

Q: The U.S. central credit union and the corporate credit union A. are the primary regulators of the credit union industry. B. pool funds and provide investment services to local credit unions. C. serve as the trade organization for the industry. D. charter credit unions. E. provide deposit insurance for credit unions.

Q: Credit unions are I. Mutual associations II. Not open to the general public III. For profit institutions A. I only B. II only C. I and II only D. I, II, and III E. II and III only

Q: _____________ are the most diversified of depository institutions and ______________ are on average the largest depository institutions. A. Banks; savings institutions B. Credit unions; banks C. Credit unions; credit unions D. Banks; banks E. Savings institutions; banks

Q: Deposits at savings banks are backed by the _______________ and deposits at savings institutions are backed by the ______________. A. BIF; BIF B. BIF; SAIF C. SAIF; BIF D. SAIF; SAIF E. DIF; DIF

Q: Historically, most savings institutions were established as A. mutual organizations B. stockholder organizations C. partnerships D. charitable organizations E. banks

Q: The predominant liabilities for savings institutions are A. commercial deposits and FHLB borrowings. B. wholesale money market notes and reserves at the Fed. C. small time and savings deposits and FHLB borrowings. D. checking accounts and money market mutual funds.

Q: In 2010, the largest U.S. savings institution was A. ING Bank B. Washington Mutual C. Navy Federal D. Hudson City Bancorp E. HSBC Financial

Q: After 1989, savings institutions have primarily been regulated by A. Federal Home Loan Bank Board B. Federal Deposit Insurance Corporation C. Office of Thrift Supervision D. National Credit Union Administration

Q: Which one of the following has the highest concentration of mortgage-related assets on the balance sheet? A. Savings institutions B. Commercial banks C. Credit unions D. Finance companies E. Pension funds

Q: The QTL test requires that thrifts A. limit the amount of mortgage-related assets on the balance sheet to improve diversification. B. invest in a minimum percentage of government-backed securities to protect their mortgage loans. C. lend no more than 80% of the value of a home to a borrower to ensure mortgage safety. D. keep 35% of their assets in safe liquid investments to ensure adequate deposit liquidity. E. invest at least 65% of their assets in mortgages or mortgage-related assets.

Q: Which of the following trends in the number and industry assets of savings institutions is/are correct? I. The number of savings institutions has fallen over time. II. The number of savings institutions has increased over time. III. Total industry assets fell during the recession of the late 2000s. IV. Total industry assets are falling over time. V. Total industry assets are stable but the number of savings institutions has fallen. A. II and III only B. I and III only C. I and IV only D. II and IV only E. V only

Q: Sales finance institutions specialize in loan sales to banks and thrifts.

Q: Because of the differences in the makeup of their major loan types, finance companies typically have shorter-term loans than banks.

Q: The largest U.S. banks are larger than the entire credit union industry.

Q: There are more credit unions than other types of thrifts, but credit unions are generally smaller than other types of thrifts.

Q: The National Credit Union Administration is the primary regulator of federally chartered credit unions.

Q: Credit unions are not taxed, as a result well-run credit unions are often able to charge lower loan rates and pay slightly higher deposit rates than banks.

Q: Savings institution deposits and bank deposits are backed by two different insurance funds.

Q: Traditionally, most credit union members had a common employer, but increasingly the required commonality is a common location of either residence or workplace.

Q: In a mutual organization, the depositors are owners of the institution.

Q: Savings institutions must have at least 65% of their assets in mortgage related areas in order to maintain their favorable tax status and obtain FHLB loans.

Q: After deposits, the second largest source of funds at savings institutions is FHLB loans.

Q: The policy employed in the 1980s of not closing economically insolvent savings institutions was called regulatory forbearance.

Q: Of all the depository institutions, as a percentage of assets, credit unions rely the most on deposit sources of funds.

Q: Prior to 1986, Regulation Q limited the interest rate that depository institutions could pay on deposits and allowed savings institutions to pay a slightly higher rate than banks.

Q: What are the three pillars of the proposed new Basel Accord (Basel II)?

Q: What changes to foreign bank operations in the United States have been brought about by the Foreign Bank Supervision and Enhancement Act of 1991?

Q: How do risk-based deposit insurance premiums and risk-based capital requirements help reduce the moral hazard problem of deposit insurance? (Hint: Moral hazard means that because of deposit insurance, banks may take on excessive amounts of risk.)

Q: A financial service holding company operates a nationally chartered bank, an insurance firm, a securities firm, and a federal savings bank. Who is the primary regulator for this company? Explain.

Q: Why were the FIRREA of 1989 and the FDICIA of 1991 passed? What were their major provisions? How did these laws differ from earlier acts of the 1980s?

Q: Why have some states placed restrictions on intrastate and interstate branches? What historical laws gave this right to states? What law changed these restrictions?

Q: Cite one law or regulation per each of the following categories: Safety and Soundness Regulation

Q: a) A bank has risk-weighted assets of $175 and equity of $12.5. If regulators require a minimum risk-weighted capital ratio of 5% given the current level of equity, how many new assets with a 100% risk weight can the bank add? How many with a 50% risk weight? b) If the bank had 20% more equity, how many new assets with a 100% risk weight could the bank add? How many with a 50% risk weight? How does having more equity affect a bank's ability to grow? How is this growth affected by the riskiness of the bank's assets?

Q: a) What are the mandatory Prompt Corrective Action (PCA) Provisions for an undercapitalized bank? Explain why these provisions are required. b) Why does one of the mandatory PCA Provisions for a critically undercapitalized bank include appointing a receiver/conservator within 90 days?

Q: Discuss the four layers of regulation designed to preserve the safety and soundness of DIs. *Lending limits require diversification.

Q: Which act allowed the establishment of full-service financial institutions in the United States? A. Riegle-Neal Act B. Financial Services Modernization Act C. USA Patriot Act D. Foreign Bank Supervision Enhancement Act E. Foreign Banking Activity Powers Enforcement Act

Q: The FDIC is required to collect additional insurance premiums from insured institutions if the BIF reserves fall below ________________ of insured deposits. A. 1.00% B. 1.15% C. 1.50% D. 1.75% E. 2.00%

Q: Tier II (supplementary) capital includes which of the following? I. Allowance for loan and lease losses, up to 1.25% of risk-weighted assets II. Subordinated debt not maturing within 5 years (max amount = 50% of Tier 1 capital) III. Common stock and retained earnings IV. Nontransaction deposits A. II and III only B. I and IV only C. I and II only D. I, II, and III only E. I, III, and IV only

Q: The _______________________ introduced the prompt corrective action policy that requires federal intervention when a bank's capital falls below certain minimums. A. Federal Deposit Insurance Corporation Improvement Act B. Financial Services Modernization Act C. USA Patriot Act D. Foreign Bank Supervision Enhancement Act E. Foreign Banking Activity Powers Enforcement Act

Q: Among other things, the _____________ prohibits U.S. banks from providing banking services to foreign shell banks. A. International Banking Act B. Financial Services Modernization Act C. USA Patriot Act D. Foreign Bank Supervision Enhancement Act E. Foreign Banking Activity Powers Enforcement Act

Q: In the United States, regulators currently use a ________________ to calculate required reserve balances. A. lagged reserve accounting system B. contemporaneous reserve system C. homoscedastic reserve system D. two-day computation period E. accrual accounting period

Q: Requiring foreign banks to operate under the same rules as domestic banks is termed A. favored status. B. IBA clause. C. national treatment. D. NAFTA. E. post-patriotism requirement.

Q: A bank has Tier 1 capital of $90 million and Tier 2 capital of $70 million. The bank has total assets of $2,522 million and risk-weighted assets of 2,017.6 million. This bank is A. critically undercapitalized. B. significantly undercapitalized. C. undercapitalized. D. adequately capitalized. E. well-capitalized.

Q: Tier I (core) capital includes at least some part of which of the following? I. Common stockholders' equity II. Retained earnings III. Subordinated debt IV. Allowance for loan and lease losses A. I only B. I and II only C. I and IV only D. II and III only E. I, II, III, and IV

Q: Recent regulation such as the Riegle-Neal Act of 1994 has removed some of the federal banking laws that formerly constrained profitable opportunities for commercial banks. The Riegle-Neal Act removes the major restrictions on banks' ability to _________________. A. diversify geographically B. diversify their product line C. engage in securities underwriting D. engage in insurance underwriting E. engage in loan brokerage

Q: Basel II consists of three overlapping areas that are designed to bolster the safety and soundness of the financial system. The three areas include I. regulatory capital requirements for credit, market, and operational risk. II. eliminating complex risk-based capital requirements for on- and off-balance-sheet accounts. III. ensuring that banks have sound internal control procedures in place to measure and limit risk. IV. requirements to disclose to market participants the institution's capital structure, risk exposure, and capital adequacy. V. increasing deposit insurance premiums on all accounts. A. I, II, and III B. I, III, and IV C. II, III, and V D. I, IV, and V E. II, III, and IV

Q: The FDIC may require an undercapitalized bank to I. provide the FDIC with a capital restoration plan. II. cease acquiring brokered deposits. III. obtain FDIC approval for all acquisitions. IV. suspend dividends and management fees. V. suspend payments on subordinated debt. A. I and II only B. III only C. I, II, III, and IV only D. I, II, III, IV, and V E. I, II, III, and V only

Q: To be well-capitalized, a bank must have a leverage ratio of at least ____________%, Tier I capital to risk-adjusted asset ratio of at least ____________%, and a total risk-based capital ratio of at least ___________%. A. 4; 4; 8 B. 5; 6; 10 C. 3; 3; 8 D. 4; 8; 4 E. 4; 6; 10

Q: To be classified as an adequately capitalized bank, the bank must have a leverage ratio of at least ____________%, Tier I capital to risk-adjusted asset ratio of at least ______________ % and a total risk-based capital ratio of at least __________%, and does not meet the definition of a well-capitalized bank. A. 4; 4; 8 B. 5; 6; 10 C. 3; 3; 8 D. 4; 8; 4 E. 4; 6; 10

Q: All banks located in the European Union offer deposits that are insured for __________ Euros, although depositors are subject to a _________________ in the event of loss. A. 100,000; 2.5% insurance premium B. 50,000; 95% recovery rate C. 50,000; 10% deductible D. 45,000; 5% fine E. 75,000; 90% recovery rate

Q: Areas of commercial bank regulation designed to encourage banks to lend to socially important sectors such as housing and farming are termed ______________________ regulations. A. safety and soundness B. consumer protection C. investor protection D. credit allocation E. monetary policy

Q: Areas of commercial bank regulation dealing with preventing banks from discriminating unfairly in lending are termed ______________________ regulations. A. safety and soundness B. consumer protection C. investor protection D. credit allocation E. monetary policy

Q: Among other things, the Financial Institutions Reform, Recovery, and Enforcement Act stipulated the creation of the A. FDIC B. OTS C. OCC D. Warren Commission E. CRA

Q: Which act led to interstate banking in the United States? A. Glass-Steagall Act B. DIDMCA C. McFadden Act D. Riegle-Neal Act E. Financial Services Modernization Act

Q: The law that largely repealed the Depression era banking laws was the A. Depository Institution Deregulation and Monetary Control Act of 1980 B. Financial Services Modernization Act C. FIRRE Act D. International Banking Act E. none of the above

Q: Which of the following would increase the value of a bank charter? I. Tightening restrictions on new charters II. Broadening the activities banks can engage in III. Increasing reserve requirements IV. Doubling capital adequacy requirements A. I and II only B. II only C. III and IV only D. I and IV only E. II and III only

Q: Major provisions of the Financial Services Modernization Act of 1999 include all of the following except A. allowing bank holding companies to open insurance underwriting affiliates and vice versa. B. allowing bank holding companies to open or merge with investment banks. C. created one regulator to oversee all activities of financial service firms. D. all of the above are included.

Q: In the post-Depression era the largest number of bank failures occurred in which time period? A. 1955-1965 B. 1965-1975 C. 1975-1985 D. 1985-1995 E. 1995-2005

Q: FDIC deposit insurance is generally limited to ________________ per depositor per bank. A. $50,000 B. $100,000 C. $150,000 D. $200,000 E. $250,000

Q: U.S. depository institutions may be subject to as many as ______________ separate regulators. A. 4 B. 5 C. 6 D. 7 E. 8

Q: The reduction in deposit funds cost to an individual bank brought about by government insurance is an example of the A. social benefit of regulation. B. private cost of regulation to DIs. C. private benefits of regulation to DIs. D. net regulatory burden. E. none of the above

Q: The term disintermediation refers to A. the policy of not closing insolvent institutions in hopes that they can eventually turn around their performance. B. the withdrawal of deposits from depository institutions that are reinvested in other types of intermediaries. C. the policy of regulating the minimum rate of return institutions can pay on deposits. D. chartering restrictions that limit the ability of new banks to enter into a local market. E. the policy of not allowing banks to grow by creating a de novo branch outside their traditional market area.

Q: A bank that has an equity to asset ratio equal to 12% can normally lend no more than _________________ of its assets to any one borrower. A. 1.20% B. 1.50% C. 1.80% D. 12.00% E. 15.00%

Q: There were a greater number of bank failures from 1980 to 1990 inclusive than from 1934 to 1979.

Q: A bank holding company that only has one bank is termed a unit bank.

Q: The Glass-Steagall Act came about due to concerns about excessive risk taking at banks and conflicts of interest between commercial and investment banking activities.

Q: The Financial Services Modernization Act allowed bank holding companies to open insurance underwriting affiliates and allowed insurance companies to open banks.

Q: Unit banking states are states that do not allow interstate branch banking, but allow the creation of intrastate branch banks.

Q: The FDIC insures bank deposits and the OTS insures thrift deposits.

Q: The Financial Services Modernization Act first allowed Section 20 affiliates.

Q: A securities subsidiary of a bank holding company that engages in investment banking is called a Riegle-Neal affiliate.

Q: A financial intermediary that can engage in a broad range of financial service activities is termed a universal FI.