Question 1

The evidence relating to economies of scale in banking&#10;A) Favors small banks&#10;B) Favors offering a variety of financial products&#10;C) Suggests that larger and smaller banks can coexist&#10;D) Suggests that banks can offer different products at lower costs

Accepted Answer

Economies of scale in banking suggest that both larger and smaller banks can coexist, benefiting from different advantages. Larger banks may benefit from economies of scale in processing and risk management, while smaller banks can be more nimble and provide personalized services.

Question 2

The United States has a very large number of commercial banks compared to other countries because of&#10;A) Cost considerations&#10;B) Historically, many states have had unit banking restrictions&#10;C) Federal deposit insurance restrictions&#10;D) Regulatory compliance considerations

Accepted Answer

Historically, the United States has had a large number of commercial banks due to unit banking restrictions imposed by many states. These restrictions limited banks to a single office, preventing them from opening branches and thus leading to a higher number of small, independent banks.

Question 3

The interbank market in the United States&#10;A) Is dormant&#10;B) Serves to transfer funds from larger to smaller banks&#10;C) Serves to transfer funds from smaller to larger banks&#10;D) Cannot transfer funds across state borders

Accepted Answer

Serves to transfer funds from smaller to larger banks&#10;

Question 4

The interbank market&#10;A) Causes interest rates across the country to diverge&#10;B) Causes interest rates across the country to converge&#10;C) Has no affect on interest rate variations&#10;D) None of the above

Accepted Answer

The interbank market helps to standardize interest rates across different banks and regions, leading to a convergence of interest rates across the country. This is because banks can borrow and lend to each other at prevailing market rates, which helps to even out differences that might otherwise exist.

Question 5

Economies of scope&#10;A) Argue for complementary financial products to be offered by banking organizations&#10;B) Are achieved through universal banks in some countries&#10;C) Are achieved, in part, through holding companies in the United States&#10;D) All of the above

Accepted Answer

Economies of scope refer to the efficiencies formed by variety, not volume. They are achieved when a company can produce multiple products more cheaply in combination than separately. This concept supports the idea of complementary financial products offered by banking organizations (A), is a characteristic of universal banks in some countries where banks offer a wide range of financial services (B), and is also achieved through holding companies in the United States, which can own multiple businesses and create synergies among them (C).

Question 6

The Glass-Steagall Act of 1933&#10;A) Prohibited branching across state lines&#10;B) Prohibited foreign banks from operating in the United States&#10;C) Prohibited underwriting of securities by commercial banks&#10;D) Required that all depository institutions have federal deposit insurance

Accepted Answer

The Glass-Steagall Act of 1933 primarily aimed to restore public confidence in the banking system, notably by prohibiting commercial banks from engaging in the underwriting and dealing of securities, which is reflected in choice C. This separation of commercial and investment banking was intended to reduce conflicts of interest and prevent the types of banking practices that contributed to the 1929 stock market crash and subsequent Great Depression.

Question 7

Savings (or thrift) institutions historically&#10;A) Focused on mortgage lending&#10;B) Received funds from retail depositors&#10;C) Had a serious maturity mismatch between assets and liabilities&#10;D) All of the above

Accepted Answer

Savings (or thrift) institutions have historically focused on mortgage lending, received funds primarily from retail depositors, and faced a significant maturity mismatch between their long-term assets (like mortgages) and their short-term liabilities (like savings deposits).

Question 8

Credit unions&#10;A) Typically are small&#10;B) Offer retail customers deposit accounts similar to those offered by commercial banks&#10;C) Primarily lend to their members&#10;D) All of the above

Accepted Answer

Credit unions are often smaller than commercial banks, they offer similar deposit account services to retail customers, and they primarily focus on lending to their members, making all of the provided options correct.

Question 9

Providing umbrella regulation over bank holding companies is&#10;A) The Department of the Treasury&#10;B) The Office of the Comptroller of the Currency&#10;C) The Federal Reserve&#10;D) All of the above share this responsibility

Accepted Answer

The Federal Reserve is responsible for the supervision and regulation of bank holding companies, providing an umbrella of oversight to ensure their safety, soundness, and compliance with laws and regulations.

Question 10

The national treatment principle&#10;A) Permits foreign-owned banking institutions to conduct the same business as domestic institutions&#10;B) Subjects foreign-owned banking institutions to the same supervision and regulation as domestic institutions&#10;C) Addresses automated teller machines (ATMs)&#10;D) Both a and b

Accepted Answer

The national treatment principle ensures that foreign-owned banking institutions are allowed to conduct the same business as domestic institutions and are subjected to the same supervision and regulation, ensuring a level playing field.

Question 11

Regulatory capital standards&#10;A) Are based on the risk profile of the bank&#10;B) Are stiffer for systemically important financial institutions&#10;C) Are being coordinated internationally&#10;D) All of the above

Accepted Answer

The answer of Regulatory capital standards&#10;A) Are based on the...

Question 12

Regulatory liquidity standards&#10;A) Have been avoided by regulators around the globe&#10;B) Have been demonstrated to be ineffective&#10;C) Have become a focus of regulators in the United States and elsewhere&#10;D) All of the above

Accepted Answer

The answer of Regulatory liquidity standards&#10;A) Have been avoided by...

Deck 17: Depository Institutions