Deck 14: The Banking Industry

Question 1

During the 1980s and 1990s, the number of domestically chartered commercial banks in the United States

A)declined by more than one-third.
B)more than doubled.
C)more than tripled.
D)declined by about 90%.

Answer 1

declined by more than one-third.

Question 2

National banks are supervised by the

A)Office of the Comptroller of the Currency.
B)Office of Bank Supervision.
C)Securities and Exchange Commission.
D)Office of Management and the Budget.

Answer 2

Office of the Comptroller of the Currency.

Question 3

What is the primary reason for the differences between the U.S. banking system and those in other major industrial countries?

A)Economies of scale are greater in banking in the United States than in banking in other countries.
B)legislation that led to the development of state and national banks.
C)the Federal Reserve System.
D)the National Bank.

Answer 3

legislation that led to the development of state and national banks.

Question 4

Research on the Free Banking Period has found that

A)holders of state bank notes took only small losses.
B)holders of state bank notes took substantial losses.
C)bank failures during the period were due largely to a loss of consumer confidence.
D)bank failures had little to do with changes in the value of banks' assets.

Question 5

As of 2006, about what percentage of U.S. banks have less than $100 million in assets?

A)20%
B)46%
C)54%
D)98%

Question 6

Congress introduced deposit insurance in response to

A)the savings-and-loan crisis of the 1980s.
B)the banking crisis of the 1930s.
C)the demise of the Second Bank of the United States in 1836.
D)the demise of the First Bank of the United States in 1811.

Question 7

Comparing the U.S. banking system to the systems in other major industrial countries, which of the following statements is true?

A)The United States has more banks and more bank offices per capita.
B)The United States has fewer banks and fewer bank offices per capita.
C)The United States has more banks, but about the same number of bank offices per capita.
D)The United States has about the same number of banks, but more bank offices per capita.

Question 8

Who were the chief foes of the attempt to establish a national banking system in the early nineteenth century?

A)Manufacturers located in big cities
B)Shipping companies located in big cities
C)Financial interest located in big cities
D)Agricultural and rural interests

Question 9

As of 2006, about how many banks were there in the United States?

A)57
B)2000
C)7500
D)14,000

Question 10

A national bank is subject to examination by which of the following?

A)Securities and Exchange Commission
B)Office of the Comptroller of the Currency
C)Federal Reserve
D)FDIC

Question 11

Compared to the banking systems in other major industrial countries, the banking system in the United States has

A)fewer banks and is more concentrated.
B)more banks and is more concentrated.
C)fewer banks and is less concentrated.
D)more banks and is less concentrated.

Question 12

Why did state banks begin to offer demand deposits?

A)They were prohibited by federal banking law from offering time deposits.
B)They were prohibited by federal banking law from offering loans to small businesses.
C)They were prohibited by federal banking law from offering loans to households.
D)Federal banking law imposed a tax on state bank notes.

Question 13

When did the charter of the Second Bank of the United States expire?

A)1791
B)1836
C)1863
D)1993

Question 14

When was the Free Banking Period?

A)1791-1836
B)1836-1863
C)1863-1914
D)1914-1990

Question 15

By 2006, what share of U.S. assets were held by the 10 largest banks in the United States?

A)0.9%
B)29%
C)49%
D)68%

Question 16

Between 1995 and 2000

A)the growth in size of foreign banks meant that the United States no longer had any banks among the 30 largest in the world.
B)mergers resulted in two U.S. banks becoming among the ten largest in the world.
C)mergers resulted in the ten largest banks in the world all being U.S. banks.
D)mergers resulted in the 30 largest banks in the world all being U.S. banks.

Question 17

From 1863 to 1914, which banks issued bank notes?

A)Only state banks
B)Only national banks
C)Both state and national banks
D)Only Federal Reserve banks

Question 18

The United States has a dual banking system in the sense that

A)the public may deposit money in either commercial banks or savings-and-loan associations.
B)banks offer both demand deposits and time deposits to savers.
C)banks are chartered by the federal government and by state governments.
D)banks both take in deposits and make loans.

Question 19

During the Free Banking Period

A)banks were not allowed to charge interest on loans.
B)banks were not allowed to charge fees to depositors.
C)banking was conducted with little government intervention.
D)the Second Bank of the United States was in operation.

Question 20

What are federally chartered banks called?

A)Federal banks
B)Federal Reserve banks
C)National banks
D)Central banks

Question 21

Banks are exposed to interest rate risk primarily because

A)interest rates are very difficult to forecast.
B)the maturities of banks' assets and liabilities differ.
C)borrowers from banks are prone to default.
D)depositors are always searching for a slightly higher interest rate.

Question 22

The FDIC was created in

A)1863.
B)1913.
C)1934.
D)1991.

Question 23

Which banks are members of the Federal Reserve System?

A)Only national banks
B)Only state banks
C)National banks and some state banks
D)Only bank holding companies

Question 24

The CAMELS rating system

A)allows bank loan officers to assess the creditworthiness of borrowers.
B)is part of the means by which regulators deal with moral hazard problems in banking.
C)was phased out during the 1980s.
D)applies to state-chartered banks, but not to federally-chartered banks.

Question 25

Concern for the health of banking institutions has focused on

A)interest rate risk.
B)fraud by bank officers.
C)reckless, but not fraudulent, investments by bank officers.
D)information problems and liquidity risk.

Question 26

The most important reason for federal government concern about the health of the banking industry is that

A)banks are the primary market for government bonds.
B)banks are of great importance in reducing information costs in the financial system.
C)many Americans receive a substantial part of their income as interest on bank deposits.
D)banks employ a substantial number of people.

Question 27

Contagion refers to

A)the spreading of bad news about one bank to include other banks.
B)the tendency for one bank regulator to become more strict if other bank regulators become more strict.
C)the tendency for the desire for increased bank regulation to spread from one politician to another.
D)the tendency for one bad loan in a bank portfolio to cause other loans in the portfolio to go bad.

Question 28

Which of the following is NOT true of membership in the FDIC?

A)All commercial banks are members of the FDIC.
B)All national banks are members of the FDIC.
C)Most large state banks are members of the FDIC.
D)Some state banks are not members of the FDIC.

Question 29

The failure of financially healthy banks is particularly likely to hurt

A)large corporations.
B)sellers of corporate bonds.
C)the federal government's attempts to sell its securities.
D)households and small and medium-sized businesses.

Question 30

The Federal Reserve System was created in response to

A)the stock market crash of 1929.
B)the ending of the Civil War.
C)banking panics.
D)difficulties of the free-banking era.

Question 31

A bank run involves

A)a failure by a bank to get the maximum return on its investments.
B)large numbers of depositors withdrawing their deposits within a short period of time.
C)a bank being forced out of business.
D)fraud on the part of a bank's managers.

Question 32

The Federal Reserve System was created in

A)1836.
B)1863.
C)1913.
D)1945.

Question 33

Most federal credit unions are chartered and regulated by the

A)Office of Thrift Supervision.
B)National Credit Union Administration.
C)Office of the Comptroller of the Currency.
D)Federal Reserve System.

Question 34

Interest rate risk

A)is currently a severe problem for banks.
B)isn't currently much of a problem for banks.
C)would be a very severe problem in the absence of deposit insurance.
D)has been exacerbated by the increased use of flexible-rate financial securities.

Question 35

Federally chartered savings institutions are supervised by the

A)Office of Thrift Supervision.
B)Securities and Exchange Commission.
C)Office of the Comptroller of the Currency.
D)Federal Reserve System.

Question 36

Savers cannot know the true health of banks because

A)bank finance is too complicated for most savers to understand.
B)bank balance sheets are kept confidential for competitive reasons.
C)banks have private information about their loan portfolios.
D)bank officials are barred by government regulation from divulging to the public details of their loan portfolios.

Question 37

Bank holding companies are supervised by

A)state banking authorities in the state in which the holding company is chartered.
B)the Office of the Comptroller of the Currency.
C)the Federal Reserve System.
D)the Office of Thrift Supervision.

Question 38

Federal deposit insurance for credit unions is provided by the

A)Office of Thrift Supervision.
B)FDIC.
C)National Credit Union Share Insurance Fund.
D)Federal Reserve System.

Question 39

Critics of allowing bank examiners too much discretion argue that doing so results in banks

A)charging higher interest rates on loans.
B)being too conservative in making loans.
C)having to pay bribes in order to receive favorable examiners' reports.
D)declining to accept deposits from some depositors.

Question 40

The underlying problem that may lead to runs on solvent banks is

A)irresponsible reporting by the news media.
B)excessive regulation of banks by the government.
C)excessive gullibility on the part of the public.
D)private information about banks' loan portfolios.

Question 41

The fact that capital-asset ratios in the banking industry are today at about half their level of 1930 is best explained by the

A)existence of deposit insurance.
B)wider range of good investments available to bank managers today.
C)fact that the value of bank assets has not increased as fast as the value of bank capital.
D)absence of federal regulation.

Question 42

If you have $2 million in a CD at a commercial bank that is a member of the FDIC, how much of your funds are uninsured?

A)$0
B)$1 million
C)$1.9 million
D)$2 million

Question 43

When was the National Banking Period?

A)1836-1863
B)1863-1913
C)1913-1934
D)1934-1990

Question 44

The main reason banks are prohibited from investing deposits in common stocks is that

A)the federal government does not want banks to provide competition for stockbrokers.
B)worrying about fluctuations in stock prices might distract bank managers from their other activities.
C)the existence of deposit insurance gives bank managers an incentive to make risky investments.
D)common stocks are not very liquid investments.

Question 45

Which of the following is NOT true of the purchase and assumption method of handling a bank failure?

A)This method is used by the Federal Reserve but not by the FDIC.
B)This method is more common than the payoff method.
C)The goodwill of the failed bank is preserved.
D)Another financial institution will take over the failed bank.

Question 46

In the current U.S. economy, who plays the role of lender of last resort?

A)The Securities and Exchange Commission
B)The Federal Deposit Insurance Corporation
C)The Federal Reserve System
D)The Social Security Administration

Question 47

Currently, the FDIC insures deposits up to a limit of

A)$1000.
B)$2500.
C)$100,000.
D)$1,000,000.

Question 48

About what percentage of depositors are fully insured under FDIC?

A)1%
B)5%
C)50%
D)99%

Question 49

Between 1934 and 1981 about how many banks failed per year in the United States?

A)0
B)10
C)100
D)1000

Question 50

As a result of the McFadden Act,

A)deposits in state chartered banks receive federal deposit insurance protection.
B)there are a larger number of banking firms in the United States than there would have been otherwise.
C)only state chartered banks are allowed to offer demand deposits.
D)bank credit card interest rates are regulated at the federal level.

Question 51

During a banking panic, a lender of last resort will

A)purchase banks which are having difficulty but appear sound.
B)make loans to solvent but illiquid banks.
C)make loans to insolvent but liquid banks.
D)make loans to any banks which request them.

Question 52

The introduction of federal deposit insurance resulted in

A)more banking panics than had occurred previously.
B)a decline in monitoring activities by depositors.
C)an increase in monitoring activities by depositors.
D)an increase in the interest rate paid on bank deposits.

Question 53

In 1998, in order to avoid contagion, the Fed

A)expanded the deposit insurance system.
B)made substantial loans to three of the top ten U.S. banks.
C)brought together the creditors of Long-Term Capital Management.
D)raised interest rates.

Question 54

Risk-based capital requirements result in

A)higher interest rates on deposits.
B)higher capital requirements for banks with riskier portfolios.
C)higher federal deposit insurance premiums for bank managers with poor records of handling their personal finances.
D)greater capital being required of banks with a history of bank runs.

Question 55

The McFadden Act of 1927

A)separated commercial banking from investment banking.
B)put a tax on the issuance of bank notes by state banks.
C)prohibited national banks from operating branches outside their home states.
D)established the Federal Reserve System.

Question 56

An important private arrangement to deal with bank runs during the pre-Federal Reserve period was called

A)the New York Clearing House.
B)the Federal Funds Market.
C)Check Clearing, Inc.
D)the Bank Loan Fund.

Question 57

The Fed's role as lender of last resort

A)has been taken over by the FDIC.
B)has been expanded to include ensuring general financial stability.
C)was eliminated by the Banking Reform Act of 1995.
D)has remained unchanged since 1913.

Question 58

Where do the FDIC's funds come from?

A)Congress appropriates money for the FDIC, just as it does for other federal agencies.
B)The FDIC earns income through the insurance premiums paid by insured banks and from investment earnings.
C)The FDIC sells bonds in the financial markets.
D)The FDIC relies on voluntary contributions from the banking community.

Question 59

What percentage of bank depositors are fully covered by federal deposit insurance?

A)1%
B)5%
C)99%
D)100%

Question 60

When the payoff method is used to handle a bank failure,

A)the bank is allowed to remain open.
B)all depositors, insured and uninsured, receive their deposits back.
C)insured depositors receive their deposits back only if the bank's assets can be sold for a sufficient amount.
D)the bank is closed and all insured depositors receive their deposits back.

Question 61

Why was the proposal by the FDIC to increase coverage of insured deposits to $200,000 greeted skeptically by most economists?

Question 62

The best explanation for the persistence of geographic restrictions on banks is that

A)these restrictions have promoted competition among banks.
B)these restrictions have reduced the exposure of banks to credit risk.
C)Americans have long distrusted large, big-city banks.
D)these restrictions have reduced the costs of loans for most borrowers.

Question 63

In the Japanese economy, the link between keiretsu, or industry groups, and their main banks

A)probably resulted in group firms growing more slowly than nongroup firms.
B)resulted in group firms paying higher loan interest rates than they would have in bond markets.
C)was finally declared illegal by the Japanese government in the early 1980s.
D)was abolished by international agreement in 1992.

Question 64

For much of the post-World War II period, Japanese firms have depended greatly on bank loans because

A)most Japanese firms are owned by banks.
B)interest on bank loans in Japan is deductible on the corporate income tax, while interest on corporate bonds is not.
C)most investors found Japanese stock and bonds too risky.
D)the Japanese government kept firms from issuing securities abroad or risky debt instruments at home.

Question 65

States that restrict banks to having a single branch are said to require

A)mono banking.
B)nonbank banking.
C)unit banking.
D)semi-banking.

Question 66

Which of the following statements was NOT true of the Glass-Steagall Act?

A)It probably resulted in borrowers paying more to issue new securities.
B)Its elimination may have exposed the FDIC to additional risk.
C)The Supreme Court ruled that the act applied to the overseas activities of banks.
D)In 1989 the Fed gave some commercial banks the limited power to underwrite corporate bonds.

Question 67

Geographic restrictions on banks

A)reduce their ability to take advantage of economies of scale.
B)raise the costs of their providing risk-sharing, liquidity, and information services.
C)reduce their exposure to credit risk.
D)reduce the amount of local lending they undertake.

Question 68

For Japanese firms, since 1980 the share of external funds raised by bank borrowing has

A)fallen.
B)risen.
C)remained the same.
D)risen until 1985 and fallen after 1985.

Question 69

A distinguishing feature of German banking, compared with U.S. and Japanese banking, is

A)German banks may operate only a single branch.
B)the German government closely regulates the interest rate German banks may charge.
C)Germany allows universal banking.
D)German banks may make no investments outside the country.

Question 70

Nonbank offices

A)took demand deposits but did not make loans.
B)made loans but did not take demand deposits.
C)neither took demand deposits nor made loans.
D)were another name for ATMs.

Question 71

The Glass-Steagall Act of 1933

A)prohibited branching across state lines.
B)separated commercial banking from investment banking.
C)forbade the opening of nonbank banks.
D)made bank holding companies illegal.

Question 72

Suppose a group of investors decide they want to establish a bank. How would they go about doing so?

Question 73

Bank holding companies are

A)banks that own nonfinancial companies.
B)banks that are technically bankrupt but whose assets have not yet been sold off.
C)nonbank banks.
D)large companies that hold many different banks as subsidiaries.

Question 74

The Competitive Equality Banking Act of 1987

A)made branching across state lines legal.
B)forbade the opening of additional nonbank banks.
C)mandated that banks charge the same interest rate to all customers receiving a particular type of loan.
D)made bank holding companies illegal.

Question 75

One consequence of the close relationship between banks and industry in Germany is that

A)German industry is inefficient because it has been able to obtain credit so easily.
B)German banks are much more likely to fail than are U.S. banks.
C)German securities markets are less well developed than U.S. securities markets.
D)there are many more banks in Germany than in the United States.

Question 76

As of September 1995,

A)states could permit interstate mergers within their own borders.
B)interstate mergers were banned.
C)bank holding companies were prohibited from acquiring banks in other states.
D)interest rates on bank loans were standardized across states.

Question 77

The Bank Holding Company Act of 1956 defined a bank as a financial institution that

A)makes commercial loans.
B)accepts demand deposits.
C)makes commercial loans and accepts demand deposits.
D)makes commercial loans, accepts demand deposit, and holds government securities.

Question 78

Universal banking refers to

A)banks with branches in every state.
B)banks involved in nonfinancial activities.
C)banks with branches in foreign countries.
D)banks which underwrite financial securities.

Question 79

What percentage of commercial bank deposits are held by bank holding companies?

A)5%
B)25%
C)75%
D)90%

Question 80

Which of the following statements about branching restrictions on banks is true?

A)Restrictions on branching are much weaker currently than they were in the 1970s.
B)Several large banks now have branches in every state.
C)Restrictions on branching are greater currently than they were in the mid-1970s.
D)Superregional banks exist only in the West.