Deck 2: The Bank Regulatory Environment

Question 1

The primary reason for bank regulation is to prevent individual banks from failing.

Answer 1

False

Question 2

Prudential regulation refers to enforcement of regulations concerning banking powers.

Answer 2

False

Question 3

The Banking Act of 1933 is commonly referred to as the Glass-Steagall Act.

Answer 3

True

Question 4

The Glass-Steagall Act prohibited interstate branching.

Question 5

The Federal Deposit Insurance Corporation was created in the early 1930's in order to reduce the number of bank failures.

Question 6

High loan-to-value ratios reduce banks' credit risk.

Question 7

CAMELS refers to the following characteristics of a bank: Capital, Asset Quality, Management, Earnings, Liquidity, and Safety.

Question 8

Deregulation has three dimensions: price, product, and geographic.

Question 9

Dual banking refers to banks chartered by the Federal Reserve and the OCC.

Question 10

The 1980 Depository Institutions Deregulation and Monetary Control Act (DIDMCA) provided for the gradual elimination of interstate restrictions on bank branching powers.

Question 11

Universal banking refers to domestics owning or being owned by banks in other countries.

Question 12

The focus of the Garn-St Germain Depository Institutions Act of 1982 was on savings and loan associations.

Question 13

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 effectively removed many of the powers that had been granted to savings and loans in the early 1980s.

Question 14

The Omnibus Budget Reconciliation Act of 1993, provided funding for the Federal Deposit Insurance Corporation Act after the Federal Savings and Loan Insurance Corporation went bust.

Question 15

The Riegle-Neal Act is, in part, responsible for banking consolidation.

Question 16

A Memorandum of Understanding, can be issued by bank regulators to banks that are not in compliance with existing regulations.

Question 17

The term "prompt corrective action" is associated with FDICIA.

Question 18

A bank with a tangible equity capital ratio of 2 percent or less is considered critically undercapitalized and is subject to closure.

Question 19

The primary supervisor for national banks is the Federal Reserve Board.

Question 20

All bank holding companies, regardless of the charter status of their subsidiary banks are regulated by the Federal Reserve Board.

Question 21

International banking laws may be divided into three categories: regional reciprocal laws, national reciprocal laws, and national laws.

Question 22

Bank holding companies own or control most of the bank assets in the United States.

Question 23

Banking in Germany is usually referred to as "universal banking."

Question 24

The Basle Committee on Banking Supervisions' Core Principles provide guidelines for international loan agreements.

Question 25

The moral hazard problem refers to the incentive created by fixed rate deposit insurance for bank managers to take excessive risk.

Question 26

Risk based deposit insurance premiums and risk based capital standards are examples of regulatory discipline.

Question 27

The GLBA eliminated all of the provisions of the Glass-Stegall Act.

Question 28

Bank "runs" occur

A) when a large number of depositors speculate on rising interest rates
B) if depositors the shift of funds from bank deposits to mutual funds
C) because of the collapse of bank loan markets
D) none of the above

Question 29

Which of the following is incorrect.

A) banks are regulated to prevent large scales failures
B) bank regulations are standardized among the major trading nations
C) the immediacy of payment of bank deposits creates an inherent tendency for bank runs
D) Banks are private, profit seeking organizations

Question 30

Among the features of the Banking Act of 1933 were the following.

A) the separation of commercial and investment banking
B) the creation of the Federal Deposit Insurance Corporation
C) the prohibition of payment of interest son demand deposits
D) all of the above are part of the legislation

Question 31

Deregulation of banks refers to

A) prices (e.g. interest paid on time deposits)
B) products (e.g., investment banking)
C) geographic location
D) all of the above

Question 32

Among the restrictions that were placed on banks by the 1933 and 1935 Banking Acts are.

A) restrictions on pricing of deposits
B) restrictions on entry and expansion
C) restrictions on scope and nature of activities, especially limitations on securities power
D) a, b, and c.

Question 33

Which of the following is not part of a bank's CAMELS rating.

A) the amount of its capital
B) the quality of management
C) the number of shareholders
D) the level of earnings.

Question 34

Net worth certificates

A) are the same as certificates of deposit
B) have a maximum interest rate that is limited by Regulation Q
C) were created by DIDMICA
D) none of the above

Question 35

The depository Institutions Deregulation and Monetary Control Act of 1980 included which of the following features.

A) creation of Money Market Deposit Accounts
B) creation of net worth certificates
C) allowed the FDIC to vary deposit insurance premiums
D) none of the above were included in the legislation.

Question 36

The Garn-St Germain Depository Institutions Act of 1982 included which of the following features.

A) assistance for floundering and failing institutions
B) net worth certificates
C) uniform reserve requirements
D) a and b, but not c.

Question 37

Which of the following is incorrect concerning the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

A) the legislation sharply reduced the lending power of thrifts
B) the legislation created the Office of Thrift Supervision
C) the legislation mandated risk based deposit insurance premium
D) the legislation increased the capital requirement for thrifts.

Question 38

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 included which of the following.

A) a qualified thrift lender test of at least 70 percent of assets in real estate related assets
B) prohibition of junk bond holdings
C) higher capital requirements
D) all of the above are part of the legislation.

Question 39

The Federal Deposit Insurance Corporation Improvement Act of 1991 included which of the following.

A) a directive to the FDIC to implement risk based capital requirements
B) recapitalization of the bank deposit insurance fund
C) addressed "too big to fail"
D) all of the above were part of the legislation.

Question 40

Which of the following was not included in the Federal Deposit Insurance Corporation Improvement Act of 1991.

A) a directive to the FDIC to implement risk based deposit insurance premiums
B) phased out of "too bid to fail"
C) sharp reductions in the lending powers of thrifts
D) prompt corrective action for troubled depository institutions.

Question 41

Under FDICIA (1991) a bank becomes critically undercapitalized when its equity capital ratio falls below:

A) 2%
B) 3%
C) 4%
D) 5%

Question 42

The Omnibus Budget Reconciliation Act of 1993

A) did not grant FDIC insurance coverage to deposits of state and local governments
B) encouraged uninsured depositors to evaluate the banks where they held funds
C) gave insured depositors a preference in claims over uninsured depositors
D) all of the above

Question 43

Section 20 subsidiaries of bank holding companies are involved in

A) investment banking
B) trust departments
C) foreign exchange
D) all of the above

Question 44

Those who favor allowing banking firms to own commercial organizations point to which of the following benefits.

A) lower the cost of funding for those firms
B) banks would be more effective monitors
C) reduced cost to the deposit insurance fund
D) a and b, but not c

Question 45

Which of the following is incorrect.

A) the moral hazard problem refers to the incentive for bank managers to take excessive risk
B) market discipline refers to pressure on banks by depositors and other investors to limit risk taking
C) regulatory discipline refers to pressure on banks by regulators through risk based deposit insurance and other constraints to reduce bank risk taking
D) all of the above are correct.

Question 46

The GLBA allowed banks to merge with:

A) Investment banks
B) Securities brokers
C) Insurance companies
D) all of the above.