Deck 17: Regulation of the Financial Institutions Sector

Question 1

There is a trend today toward gradually allowing private markets to discipline risk-taking by financial institutions and minimize the role of government.

Answer 1

True

Question 2

By the 1990s all U.S. states allowed full service branching in one form or another within their borders.

Answer 2

True

Question 3

Reciprocity laws allow a bank situated in one state to make loans to residents of another state provided local banks in the second state have denied credit to these residents.

Answer 3

False

Question 4

The Federal Deposit Insurance Reform Act of 2005 allows the FDIC to set the deposit insurance reserve ratio between 1.15 and 2.50 percent.

Question 5

The regulation of financial institutions is

A) Increasingly being handed over to the private marketplace
B) Increasingly focusing on the quality and comprehensiveness of the financial firm's risk management systems
C) Moving toward control over services offered, geographic expansion and risk taking
D) A and B only
E) A, B and C

Question 6

The US deposit insurance limit was set in 1980 and there have been recent calls to raise the deposit insurance limit from the current

A) $200,000
B) $100,000
C) $250,000
D) $300,000
E) None of the above

Question 7

The maximum insurance limit on qualified retirement deposits was raised from

A) $100,000 to $500,000
B) $100,000 to $300,000
C) $100,000 to $400,000
D) $100,000 to $700,000
E) None of the above

Question 8

What are the principal purposes or goals of regulating financial institutions?

Question 9

What impact does regulation appear to have upon the availability and cost of financial services to the public? Upon financial institutions themselves?

Question 10

Who are the principal regulatory agencies responsible for the regulation and supervision of commercial banks? What aspects of banking does each agency regulate and supervise?

Question 11

How is the nature of government regulation of financial institutions changing today? What is the new focus of recent regulation? Why do you think this change is occurring?

Question 12

What are the principal features of the Financial Services Modernization (or Gramm-Leach-Bliley) Act?
Why was it passed?

Question 13

How will Gramm-Leach-Bliley likely affect the structure of the banking and financial-services industries? Why?

Question 14

How will Gramm-Leach-Bliley affect the disclosure of financial information and the privacy rights of the customers of financial-service firms? Do you think additional legislation is needed in this field?

Question 15

Who are the particular government agencies that regulate the fol1owing financial institutions: credit unions, savings and loan associations, savings banks, insurance companies, finance companies, investment companies, pension funds. and security brokers and dealers?

Question 16

What major trends are reshaping financial institutions' regulation today? Why has capital regulation become so important?

Question 17

What new disclosure rules have recently appeared? Do you think these disclosure requirements help or hurt financial institutions? Why or why not?

Question 18

Why might there be a need for fewer regu1atory agencies in the financial sector today?

Question 19

Based on your reading of this chapter how has globalization of the financial sector impacted the regulatory agencies that oversee financial institutions? What do you think wi1l happen in the future as the financia1-services industry becomes more "globalized"?

Question 20

How much tier-one (or core) capital does this bank have? Tier-two capital?

Question 21

First National Bank of Wimbley reports tier-one capital of $60 million and tier-two capital of $70 million. First National has assets of $10 million with a risk weight of zero, assets of $350 million with a 0.2 risk weight, assets of $680 million with a 0.5 risk weight and assets of $1,010 million with a risk weight of 1.00. What is First National's total risk-weighted assets? Does the bank have enough tier-one capital? Enough total capital? Why or why not?