Deck 16: Thrift Institutions and Finance Companies

Question 1

Liquidity risk is reduced by deposit insurance and the presence of credit union "centrals".

Answer 1

True

Question 2

S&Ls were originally established to take advantage of a tax loophole.

Answer 2

False

Question 3

Federal Home Loan Banks were disbanded year s ago.

Answer 3

False

Question 4

Adjustable rate mortgages insulate thrifts against risk.

Question 5

Credit risk may be reduced by selling credit life insurance to credit union members.

Question 6

Noninterest income has become an important source of revenue for thrifts.
A() 14. Noninterest expenses of thrifts have declined significantly.
A() 15. Thrifts assume less interest rate risk and manage it better than they did 25 years ago.

Question 7

Credit unions have shortened the duration of their loan portfolios by making mortgage loans.

Question 8

The Federal Savings and Loan Insurance Corporation insures deposits of S&Ls.

Question 9

Mortgages remain the most important asset of savings institutions.

Question 10

Credit unions are exempt from federal income tax on income from financial assets.

Question 11

Securitization has not "caught on" in the thrift industry.

Question 12

Federal Home Loan Banks are among the regulators of savings institutions.

Question 13

Credit unions have higher loan losses than commercial banks.

Question 14

"Mutual" institutions are owned by their depositors.

Question 15

The Office of Thrift Supervision is the principal federal regulator of S&Ls.

Question 16

Thrifts assume interest rate risk because maturities of their liabilities and assets are typically unmatched.

Question 17

Congress gave thrifts the right to make consumer loans so they could diversify their assets and shorten their asset durations.

Question 18

"Negative maturity GAP" S&Ls may actually profit in a recession.

Question 19

A finance company in a recession would worry more about credit risk than interest rate risk.

Question 20

Credit unions were originally organized with the idea that members could pool their funds together and make low-cost loans to themselves as a group.

Question 21

Deregulation has made all lending institutions more alike than different.

Question 22

In general, commercial banks have a higher concentration of mortgage related assets on the balance sheet than savings institutions.

Question 23

The expense categories for thrifts, from largest to smallest, are

A) non-interest expense, interest expense, provision for loan losses.
B) provision for loan losses, non-interest expense, and interest expense.
C) interest expense, non-interest expense, and provision for loan losses.
D) tax expense, interest expense, and provision for loan losses.

Question 24

The major expenses of a finance company are salaries and loan losses.

Question 25

Financial institutions must have at least 65% of their assets in mortgage related areas in order to maintain their favorable tax status and obtain loans from Federal Home Loan Banks.

Question 26

The regulatory agency most directly concerned with supervising thrifts is the

A) FHLBB.
B) OTS.
C) OCC.
D) Fed.

Question 27

In the U.S., most savings institutions were established as stockholder organizations or partnerships.

Question 28

The fixed cost of loan origination and servicing explains why finance companies prefer small shorter-term loans over large longer-term loans.

Question 29

Thrifts invest in mortgages for which of the following reasons?

A) Tax incentives provided by Congress.
B) To reduce interest rate risk.
C)
C) They have the management expertise to specialize in mortgages.
D) Both a and

Question 30

Industrial banks may arguably be likened to finance companies that issue savings deposits.

Question 31

Finance companies borrow in large amounts, lend in small amounts.

Question 32

Most business credit extended by finance companies is unsecured.

Question 33

The Office of Thrift Supervision and the Resolution Trust Corporation were created by

A) FIRRE Act of 1989.
B) FDIC Improvement Act of 1991.
C) Garn-St. Germain Act of 1982.
D) DIDMCA Act of 1980.

Question 34

The thrift crisis of the 1980s was caused by a combination of unsound lending practices and inadequate interest rate risk management.

Question 35

Of all the depository institutions, as a percentage of assets, credit unions have the highest dependence on deposit sources of funds.

Question 36

Consumer protection legislation has had an impact on the strategy of finance companies.

Question 37

All of the following are important sources of liquidity for thrifts except:

A) purchasing federal funds.
B) issuing commercial paper.
C) buying mortgage-backed bonds.
D) advances from Federal Home Loan Banks.

Question 38

Acquisition of a greater proportion of which following asset would help a thrift alleviate a high negative GAP position?

A) NOW accounts
B) high yield bonds
C) adjustable rate mortgages
D) fixed rate mortgage-backed securities

Question 39

Consumer lending is subject to more regulations than business lending.

Question 40

The U.S. Central Credit Union is a principal regulator of credit unions.

Question 41

Which of the following would reduce the high negative GAP position of an S&L?

A) increased fixed rate mortgages
B) increased long-term CDs
C) increased money market deposit accounts
D) increased federal funds purchased

Question 42

Which of the following will definitely increase an S&L's net worth, all else equal?

A) a reduced GAP position
B) conversion from stock to mutual charter
C) sale of preferred stock
D) increased reserve for loan losses

Question 43

All but one of the following is defunct:

A) FHLBB
B) OTS
C) RTC
D) FSLIC

Question 44

The takeover of weakly but still positively capitalized thrifts was an important part of the

A) FDIC Improvement Act of 1991.
B) FIRRE Act of 1989.
C) Garn-St. Germain Act of 1982.
D) DIDMCA Act of 1980.

Question 45

Earnings of the S&L industry suffered in the 1980s from both maturity imbalances and

A) loan losses related to new asset powers granted in 1980.
B) high, sustained interest rates.
C) the high rates paid on NOW accounts.
D) higher yields from consumer credit card loans.

Question 46

The sale of mortgages would offer the thrift institution all of the following except:

A) a source of liquidity from the mortgage portfolio.
B) a source of interest income.
C) an opportunity to reduce a high negative GAP position.
D) an opportunity to make additional mortgage loans.

Question 47

While thrifts are federally insured, are federally chartered.

A) few; most.
B) most, few.
C) very few; half.
D) most; half.

Question 48

The Resolution Trust Corporation was disbanded because

A) its work was complete
B) its mission proved ultimately impossible
C) it failed
D) of political infighting

Question 49

Almost all thrift financial institutions are insured by _________ deposit insurance.

A) state
B) federal
C) private
D) group

Question 50

Thrift institutions are chartered by

A) states only.
B) the federal government only.
C) both states and the federal government
D) none of the above.

Question 51

A manager/owner agency problem for thrifts when capital ratios were low was

A) managers would inflate salaries and perks for themselves.
B) managers were encouraged to assume excessive credit risk.
C) managers were encouraged to sell low-yielding mortgages, book the loss, and reinvest in higher yielding 1-4 family residential mortgages.
D) managers were encouraged to reduce risk to dangerously low levels.

Question 52

The number of OTS-regulated thrift institutions has_______ in the last five years, while the amount of assets of those institutions has _______?

A) increased, increased
B) increased, decreased
C) decreased, increased
D) decreased, decreased

Question 53

Which of the following has contributed to the very low capital levels of thrifts?

A) the use of the mutual form of organization.
B) loan losses.
C) high operating expenses.
D) all of the above

Question 54

All but one of the following is classified to some extent as a "thrift":

A) commercial bank
B) savings and loan association
C) savings bank
D) credit union

Question 55

Though most thrift institutions have had expanded asset/service privileges for several years, few have expanded very far beyond mortgage related activities for all but one of the following reasons:

A) unfamiliarity with new, competitive markets.
B) lack of experienced employees trained in the new areas.
C) reluctance to challenge the banking industry.
D) concern over possible loss of federal income tax advantages

Question 56

All but one of the following is a reason mutual thrifts have converted to stock institutions:

A) to obtain federal deposit insurance
B) to sell stock and increase their net worth
C) to acquire subsidiaries more easily
D) to merge with other institutions more easily

Question 57

A purpose of the FSLIC today is to:

A) give financial historians something to study.
B) insure federal S&Ls.
C) regulate the capital position of S&Ls.
D) monitor the activities of the 12 FHLBs.

Question 58

When comparing high performing with low-performing thrifts, low-performing thrifts tend to have fewer:

A) intangible assets.
B) repossessed properties.
C) high-yield securities.
D) residential mortgages.

Question 59

The Office of Thrift Supervision does all the following except

A) examines federally chartered S&L's.
B) administers the Savings Association Insurance Fund (SAIF).
C) charters federal S&Ls.
D) supervises S&L holding companies.

Question 60

The major assets of savings and loans are:

A) mortgage-backed securities.
B) construction loans.
C) residential mortgages.
D) cash and investment accounts.

Question 61

Thrifts' return on average assets (ROAA) has increased in recent years primarily due to

A) increased net interest income per average assets.
B) decreased noninterest expenses per average assets.
C) increased noninterest income per average assets.
D) the decline in average assets in the period.

Question 62

The Office of Thrift Supervision (OTS) replaced the _______ as the primary federal thrift regulator in 1989.

A) Federal Savings and Loan Insurance Corporation
B) Federal Deposit Insurance Corporation
C) Federal Home Loan Bank Board
D) Federal National Mortgage Corporation

Question 63

Which of the following is an effective way to reduce a thrift's negative maturity GAP?

A) making more adjustable rate mortgage loans
B) buying related futures contracts.
C) borrowing less long-term funds from the FHLB.
D) raising the rates on short-term CD's.

Question 64

Investment securities are owned by finance companies to provide

A) income and financing.
B) liquidity and cash.
C) liquidity and income.
D) collateral and income.

Question 65

A thrift institution can reduce interest rate risk by

A) making more mortgages financed by six month CD's.
B) performing more mortgage banking activities.
C) buying Treasury bond futures to reduce the thrift's negative maturity GAP.
D) making more thirty-year mortgages.

Question 66

Which of the following statements is not true?

A) Credit unions, most of which are very small, cannot match the extent of services offered by a commercial bank. b. Credit union share accounts are the functional equivalent to passbook accounts.
C) Credit unions may arguably be more comparable to "clubs" than to businesses.
D) Credit unions have a common-bond requirement.

Question 67

Credit union large certificates of indebtedness, $100,000 and above, are insured by

A) NCUSIF.
B) FDIC.
C) SAIF.
D) none of the above

Question 68

The account, other real estate owned (OREO), found as an asset on a savings and loan balance sheet is associated with:

A) the real estate associated with the home office and branches.
B) the real estate financed by home mortgages
C) the real estate of managers and employees financed by the institution.
D) repossessed real estate associated with foreclosed mortgage loans not yet resold.

Question 69

All of the following serve as an advantage for credit unions except

A) small size.
B) sponsor support.
C) federal income tax exemption.
D) payroll deduction.

Question 70

Most thrift institutions were originally organized as:

A) mutuals
B) corporations
C) proprietorships
D) partnerships

Question 71

The major assets of large finance companies are

A) certificates of deposit.
B) cash, ready to be loaned out.
C) loan receivables.
D) commercial paper.

Question 72

The major asset of thrift institutions is ______ ; ______ are the primary source of funds.

A) home mortgages; small denomination deposits
B) commercial mortgages; large denominations deposits
C) home mortgages; large denomination deposits
D) multifamily home mortgages; small denomination deposits

Question 73

Mutual thrift institutions are owned by:

A) managers
B) depositors
C) stockholders
D) the general public

Question 74

Finance companies have increasingly made second mortgage loans because of

A) higher average balances.
B) profit potential of such loans.
C) the Federal Bankruptcy law.
D) all of the above

Question 75

Thrift capital ratios increased in the last few years primarily because of

A) industry consolidation
B) stock sales and earnings retention
C) declining problem loans
D) all of the above

Question 76

The primary function of the Resolution Trust Corporation (RTC) was to:

A) insure the deposits of problem thrift institutions.
B) charter and regulate savings and loan associations.
C) liquidate and sell problem savings and loans.
D) resolve the interest rate risk problems of thrifts.

Question 77

In contrast to depository institutions, finance companies tend to

A) obtain their funds in large amounts, lend in small amounts.
B) obtain their funds in small amounts, lend in large amounts.
C) have a greater proportion of deposit sources of funds
D) be less flexible in their ability to branch.

Question 78

Which of the following statements is not true?

A) Credit unions pay federal income taxes.
B) To use the services of a credit union one must be a member.
C) Credit unions have been exempt from antitrust laws.
D) The total number of credit unions is declining in the United States.

Question 79

Credit unions are chartered by

A) state governments.
B) the National Credit Union Administration.
C) the Comptroller of the Currency.
D) either a or b

Question 80

Today thrift institutions' deposits are primarily insured by:

A) large insurance companies
B) Federal Deposit Insurance Corporation
C) Federal Savings and Loan Insurance Corporation
D) FDIC-BIF