Deck 16: Thrift Institutions and Finance Companies

Question 1

Credit unions have shortened the duration of their loan portfolios by making mortgage loans.

Answer 1

False

Question 2

Congress gave thrifts the right to make consumer loans so they could diversify their assets and shorten their asset durations.

Answer 2

True

Question 3

Most savings institutions are not involved in securitization.

Answer 3

False

Question 4

Most credit unions have a lower cost structure than commercial banks.

Question 5

Credit unions were originally organized with the idea that members could pool their funds together and make low-cost loans to themselves as a group.

Question 6

Thrifts face less interest rate risk and manage it better than they did in the past.

Question 7

"Negative maturity GAP" S&Ls may see an increase in profits when short term interest rates fall.

Question 8

Mutual institutions are not for profit whereas stockholder institutions are managed to make the most profits they can.

Question 9

The Office of Thrift Supervision is the principal federal regulator of S&Ls.

Question 10

Thrifts face significant interest rate risk because their primary loans are mortgages and their primary sources of funds are deposits.

Question 11

Credit union "centrals" pool individual credit union funds to provide cheaper investments and liquidity.

Question 12

Mortgages remain the most important asset of savings institutions.

Question 13

Adjustable rate mortgages insulate help thrifts against credit risk.

Question 14

The Federal Savings and Loan Insurance Corporation insures deposits of savings institutions.

Question 15

"Mutual" institutions are owned by their depositors.

Question 16

Aggregate finance company assets declined by almost 10 percent from 2009 to June 2015.

Question 17

S&Ls were originally established to take advantage of a tax loophole.

Question 18

CUNA assists savings banks in securitizing mortgages to reduce their interest rate risk.

Question 19

Credit unions have higher loan losses than commercial banks.

Question 20

Federal Home Loan Banks are among the regulators of savings institutions.

Question 21

The U.S. Central Credit Union is a principal regulator of credit unions.

Question 22

Consumer finance companies borrow in large amounts and lend in small amounts.

Question 23

A finance company typically worries more about credit risk than interest rate risk.

Question 24

Usury laws are regulations that limit the amount of times a finance company can lend to the same individual in a given time period to limit the amount of interest charged to any one customer.

Question 25

Financial institutions must have at least 65% of their assets in mortgage related areas in order to maintain their favorable tax and regulatory status.

Question 26

The major expenses of a finance company are salaries and loan losses.

Question 27

In general, commercial banks have a higher concentration of mortgage related assets on the balance sheet than savings institutions.

Question 28

Of finance companies, savings institutions and credit unions, as a percentage of assets, finance companies have the lowest dependence on deposit sources of funds.

Question 29

The major risk that caused widespread failures in Savings and Loans in the 1980s was interest rate risk.

Question 30

The DIDMC Act allowed national charters for thrifts.

Question 31

Finance companies are less regulated than thrift institutions and banks.

Question 32

In the past most U.S. savings institutions were established as stockholder organizations or partnerships.

Question 33

The thrift crisis of the 1980s was caused by a combination of unsound lending practices and inadequate interest rate risk management.

Question 34

Credit unions are exempt from federal income tax on income from financial assets.

Question 35

The Federal Home Loan Bank Board is the primary oversight agency for savings institutions.

Question 36

Explain how unexpected increases in interest rates hurt savings institutions. How would they alter their maturity GAP if they expected interest rates to rise?

Question 37

Federal regulations still prevent finance companies from operating across state lines.

Question 38

A mutual thrift institution is one that is owned by its depositors.

Question 39

The fixed cost of loan origination and servicing explains why finance companies prefer small shorter-term loans over large longer-term loans.

Question 40

Consumer protection legislation has had an impact on the pricing of finance companies services.

Question 41

The issue of defining the common bond among members of credit unions has been debated in the courts and Congress. Why is this issue important to competing bankers? To credit unions? Does it have any relationship to the risks faced by credit unions?

Question 42

Why did General Electric divest much of its portfolio of financial services after the financial crisis?

Question 43

How do CUNA and corporate central credit unions help small individual credit unions?Can small banks and thrifts apply similar methods?

Question 44

Explain how finance companies and depository institutions might differ in managing credit risk.