Question 1

Despite the rapid growth of automation in U.S.banking,there are more full-service branch banking offices than automated teller machines across the whole U.S.

Accepted Answer

The growth of automation and online banking has led to a higher prevalence of automated teller machines (ATMs) compared to full-service branch banking offices across the U.S., as ATMs offer a more cost-effective way for banks to provide services 24/7 without the need for physical branches.

Question 2

There is evidence that branch banks charge higher service fees for some banking services than unit banks,which reflects greater knowledge on the part of larger banks concerning true cost of service.

Accepted Answer

The statement suggests that branch banks (which are larger) have greater knowledge of the true cost of service and therefore charge higher service fees for some banking services compared to unit banks (which are smaller). This implies that the statement is true.

Question 3

Bank holding companies are allowed to own nonbank businesses as long as those businesses offer services closely related to banking.

Accepted Answer

This statement is true. Bank holding companies are regulated by the Federal Reserve and are permitted to own nonbank subsidiaries as long as they are engaged in activities closely related to banking, such as financial advisory services, securities underwriting, and insurance agencies.

Question 4

Banks tend to have a higher proportion of outside directors than a typical manufacturing firm.

Accepted Answer

Banks usually have a higher proportion of outside directors compared to a typical manufacturing firm. This is because banks are subject to more regulations and oversight, and having outside directors can provide added expertise and accountability. Additionally, shareholders of banks tend to be more dispersed and diverse, making it important for banks to have a diverse board of directors with a range of skills and perspectives.

Question 5

Banks which operate entirely on the web are known as invisible banks.

Accepted Answer

Banks that operate entirely on the web are known as online banks or internet banks, not invisible banks.

Question 6

The majority of all U.S.banks are members of the Federal Reserve System.

Accepted Answer

Most U.S. banks are not members of the Federal Reserve System; only national banks are required to be members, while state-chartered banks have the option to join.

Question 7

The concentration of bank deposits at the local level (that is in urban communities and rural counties)has displayed only moderate changes in recent years.

Accepted Answer

The sentence states that "the concentration of bank deposits at the local level [...] has displayed only moderate changes in recent years", meaning that it has not shown significant variations. Therefore, the statement is true.

Question 8

Banks acquired by holding companies are referred to as affiliated banks.

Accepted Answer

Banks that are acquired by holding companies are considered affiliated banks because they are under the same umbrella organization. Holding companies control the affiliated banks but do not necessarily merge them into one entity.

Question 9

Bank holding companies that want to achieve some reduction in earnings risk through interstate banking,can achieve the same level of risk reduction by entering any of the fifty states.

Accepted Answer

Interstate banking allows bank holding companies to diversify their portfolio and reduce earnings risk, but not all states offer the same level of economic stability and growth potential. Therefore, entering any state does not necessarily achieve the same level of risk reduction.

Question 10

Financial holding companies hold more than 90 percent of the industry's assets in the United States.

Accepted Answer

According to data from the Federal Reserve, as of Q4 2020, financial holding companies held 92.9 percent of the total assets in the U.S. banking industry.

Question 11

Recent research suggests that branch banks tend to be more profitable than either unit or holding company banks,while interstate banks tend to be the most profitable of all.

Accepted Answer

According to the given statement, the research suggests that interstate banks tend to be the most profitable of all. However, it does not mention that branch banks are more profitable than unit or holding company banks. Therefore, the statement is false.

Question 12

Research evidence suggests that banks taken over by interstate banking organizations have generally increased their market share over their competitors within the same state and are generally more profitable than their competitors.

Accepted Answer

The answer of Research evidence suggests that banks taken over...

Question 13

A banking corporation,chartered by either federal or state governments,that operates only one full-service office is called a unit bank.

Accepted Answer

A unit bank is a banking institution that operates only one full-service office and is chartered by either federal or state governments.

Question 14

Over half of all U.S.states today limit branching activity.

Accepted Answer

Today, most U.S. states do not limit branching activity due to changes in banking laws and regulations, allowing banks to open branches within and across state lines more freely.

Question 15

A unit branch faces the risk of variability in earnings if the surrounding economy weakens and people and businesses move away to other market areas.

Accepted Answer

A weakening economy could lead to a decrease in demand for the unit's products or services, which could result in lower earnings. Additionally, if people and businesses move away, there could be fewer customers for the unit, further impacting its earnings. This variability in earnings due to external factors is a significant risk faced by units in many industries.

Question 16

An average U.S.bank is larger in size (in terms of number of branch offices)than an average Canadian bank.

Accepted Answer

Canadian banks tend to have more branch offices on average compared to U.S. banks, largely due to the structure of the banking systems in each country. Canada has fewer banks that serve a national market, leading to a greater number of branches per bank.

Question 17

Less than 10 percent of the largest banks in the U.S.control almost 90 percent of the industry assets.

Accepted Answer

This statement is true according to a report published in 2019 by the Federal Reserve. The report shows that the five largest banks in the U.S. command almost 50% of the total assets in the banking industry, while the top 10 banks hold almost 80%.

Question 18

Recent research suggests that the relationship between bank size and the cost of production per unit of output is roughly U shaped.

Accepted Answer

Recent research shows that small and large banks have a higher cost of production per unit of output compared to medium-sized banks, indicating a U-shaped relationship between bank size and production cost.

Question 19

Agency theory suggests that bank management will always pursue the goal of maximizing returns of the bank's shareholders.

Accepted Answer

Agency theory suggests that there might be a conflict of interest between the management (agents) and the shareholders (principals), as managers may pursue their own goals at the expense of shareholders' goal of maximizing returns.

Question 20

In the United States there are more one-bank holding companies than multi-bank holding companies.

Accepted Answer

According to data from the Federal Reserve Bank of St. Louis as of June 2020, there were 3,424 one-bank holding companies and 537 multi-bank holding companies in the United States, indicating that there are more one-bank holding companies than multi-bank holding companies.

Quiz 3: The Organization and Structure of Banking and the Financial-Services Industry