Deck 14: Banking and Financial Services: Regulations, Operations, and Trends

Question 1

The dominant financial institution in the U.S. and in the economies of most major industrialized countries is the commercial bank.

Answer 1

True

Question 2

The label "commercial" means that banks devote a substantial portion of their resources to meeting the financial needs of business firms.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

According to most studies of bank costs, a 100 percent rise in deposit and loan accounts results in only a 50 percent increase in the cost of bank operations.

Question 5

The failure rate in the U.S. banking industry increase dramatically during the credit crisis of 2007-2009.

Question 6

Greater use of computers and electronic machines for transferring financial information will make banking more labor intensive.

Question 7

Deposits held by a bank with other banks are designed to "pay" for correspondent banking services.

Question 8

Loans of reserves between banks are made through a market known as the federal funds market.

Question 9

Loans granted to finance the purchase of buildings, machinery and equipment are called working capital loans.

Question 10

Recent events have caused investors and government officials to question the stability of securitized debt.

Question 11

Lease financing by commercial banks generally carries a higher yield to banks than direct loans but lacks any tax advantage as direct loans do.

Question 12

In recent years, demand and savings accounts have risen as a percentage of total bank sources of funds.

Question 13

Super NOW accounts may be offered only to business firms.

Question 14

MMDAs and Super NOWs carry higher yields than checking or savings deposits.

Question 15

The shift toward more expensive interest-bearing deposits is in part due to better cash management practices on the part of corporations.

Question 16

Most bank revenues come from investments in marketable securities.

Question 17

Commercial banks have the power to create money in the form of new checkable deposits.

Question 18

An individual bank cannot create more money than it has excess reserves.

Question 19

Today, legal reserves for depository institutions consist of vault cash and deposits held at the regional Federal Reserve banks.

Question 20

Suppose transaction accounts carry a reserve requirement of 10 percent and savings accounts, 3 percent. A commercial bank holds $100 million in savings accounts and $200 million in demand deposits but no other transaction accounts. Its required legal reserve is $39 million.

Question 21

Reserves withdrawn from the banking system will cause a contraction of the nation's money supply.

Question 22

The banking system can create money only dollar for dollar with the amount of excess reserves in the banking system.

Question 23

Just prior to the credit crisis of 2007-2009 bankers are willing to accept greater risk in their operations.

Question 24

Today, bankers are willing to accept greater risk because of greater volatility in the economy.

Question 25

At first most ATMs were located in retail centers; however, more recently most ATM growth has been in other areas.

Question 26

Most consumers don't like POS terminals because of the loss of check book float.

Question 27

Recent changes in the banking industry should cause banks to be smaller in size and greater in number.

Question 28

Under the terms of NAFTA Canadian and U.S. banking organizations cannot branch directly into Mexico.

Question 29

Foreign banking firms operating in Mexico cannot control insurance companies.

Question 30

The Federal Reserve System has essentially no control over foreign banks operating in the United States.

Question 31

Allowing foreign banks to operate under the same rules as domestic banks is referred to as national treatment.

Question 32

Representative offices of international banks can take deposits from the public.

Question 33

The FDIC Improvement Act in 1991 granted the Federal Deposit Insurance Corporation authority to close the U.S. offices of foreign banks if these are operated in an unsafe manner.

Question 34

Primary reserves are the banker's first line of defense against withdrawals.

Question 35

To provide adequate liquidity most banks hold more cash than necessary to meet their reserve requirements.

Question 36

Primary reserves include deposits held at the Federal Reserve banks.

Question 37

Loans are attractive to banks because of their high yield.

Question 38

Bank loans to businesses have tended to become shorter in maturity.

Question 39

Demand deposits have become more important to banks over the years.

Question 40

As far as expenses are concerned, wages and salaries are more important than interest on deposits for U.S. commercial banks.

Question 41

When commercial banks make loans, the funds loaned are usually kept on deposit with the bank for long periods, rather than being immediately used by the borrower.

Question 42

The demand deposit (check) is no longer the principal means of making payments in the U.S. economy.

Question 43

Universal banks can offer security underwriting services, but cannot offer insurance services.

Question 44

According to the text a bank reaching approximately $100 million in total assets will usually find that its production costs stop declining and level out.

Question 45

Merchant banks support customer projects entirely with borrowed funds.

Question 46

Merchant and Universal banks tend to make shorter-term investments than traditional banks.

Question 47

Loan officers are usually willing to make a loan if they can find one convenient, reasonably secure source of loan repayment.

Question 48

No U.S. banks are permitted to offer investment banking services involving corporate securities inside the United States.

Question 49

One of the advantages of standby credit letters is that they generate fee income without using up scarce bank funds.

Question 50

Bank holding companies approved to offer corporate underwriting services in the U.S. cannot generate revenues from this activity greater than 10 percent of all revenues flowing through their underwriting subsidiary.

Question 51

The economic integration of Europe under the EC should result in fewer bank mergers.

Question 52

European banks will be kept completely separate from European securities firms and insurance companies under the terms of the Maastricht Treaty and the integrated European Community (EC).

Question 53

The money position of a bank involves its legal reserves.

Question 54

With the growth in nontraditional services, noninterest margin is now a more important indicator of bank profitability than is the net interest margin.

Question 55

Collateralized mortgage obligations allow banks to invest in a marketable, diversified pool of mortgage loans that have been proven to carry very little risk.

Question 56

During the late 1980s and into the early 1990s, banks sold blocks of loans to raise capital.

Question 57

Vault cash held by a depository institution does not count as part of the legal reserves of a U.S. depository institution.

Question 58

In the U.S., state-chartered banks cannot be members of the Federal Reserve System.

Question 59

NAFTA is an economic alliance between the U.S. and Canada.

Question 60

Because of new bank management techniques designed to foster greater fee income, banks today hold much more cash (as a percentage of assets) than in previous times.

Question 61

During the past quarter century the number of US commercial banks has dropped from about 14,000 to less than 7500.

Question 62

Bank holding companies originated in the 19th century.

Question 63

The Graham Leach Bliley Act allowed the creation of financial services holding companies (FHC) in 1999.

Question 64

One of the reasons that financial services holding companies were allowed to be created in the United States was to allow U.S. banking firms to compete with the leading European banks.

Question 65

Regulations effective in the United States December 31, 2006 require bankers to develop more sophisticated account access procedures in order to protect their online customers, which include randomly asking a customer one or more personal questions, the use of tokens to randomize account passwords or they use of a customer's physical characteristics such as a retinal scan.

Question 66

Problem loans reduce bank revenues, raise operating expenses and force bankers to re-examine their relationships with customers and redesign the terms they are offering on loan contracts.

Question 67

In order to capture each Bank's loan risk exposure bank balance sheets today frequently include both gross loans and leases or the sum of the face amount of all loans and lease contracts currently outstanding and net loans and leases, which equals gross loans less unearned income and allowance for loan
losses.

Question 68

The allowance for loan and lease losses (ALL) is a loss reserve or contra asset account.

Question 69

Major banks have been shifting more of their activities on to their balance sheets.

Question 70

Commercial banks hold about ____ of the total assets of all financial institutions headquartered in the United States.

A) One-third
B) One-fourth
C) Half
D) Two-fifths
E) None of the above

Question 71

U.S. banks have penetrated overseas markets for which of the following reasons?

A) Financial needs of their corporate customers expanding abroad
B) Access to funds from the Eurodollar markets
C) Fewer regulatory barriers and less competition
D) All of the above
E) None of the above

Question 72

Which of the following reasons account for the recent increase in the failure of U.S. banks?

A) Willingness of bankers to accept greater risk in their operations
B) Increased volatility of economic and financial conditions
C) Leniency in the interpretation and enforcement of regulations
D) All of the above
E) None of the above

Question 73

The largest bank ever to fail in U.S. history was:

A) U.S. National Bank of San Diego
B) Detroit Commerce Bank and Trust
C) Franklin National Bank New York
D) Drovers National Bank of Chicago
E) None of the above

Question 74

A money-dispensing machine which is located away from the bank's main office in retail stores and shopping centers and is designed to reduce the need for conventional branch offices is known as a/an:

A) RSU
B) ATM
C) POS
D) ACH
E) None of the above

Question 75

The U.S. has about ____ regional automated clearinghouses in operation today to transfer information from one financial institution to another via computer tape.

A) 50
B) 30
C) 100
D) 200
E) 300

Question 76

A system for delivery of banking services which, according to your text, makes "every customer a branch" is:

A) POS terminal
B) ATM
C) Home TV
D) ACH
E) None of the above

Question 77

The number and different sizes of commercial banks in a given community or market area is referred to as:

A) Banking structure
B) Competition among banks
C) Economies of scale
D) Market array
E) None of the above

Question 78

A bank chartered by the federal government in the United States is known as a:

A) Universal bank
B) Merchant bank
C) Member bank
D) National bank
E) None of the above

Question 79

An institution providing services such as clearing of checks, management of security portfolios, tax advice and computer processing is called a:

A) Leasing company
B) Federal Reserve Bank
C) Correspondent bank
D) Money market fund
E) Banking commission

Question 80

Primary reserves for a bank consist of all of the following items except one. Which one is excluded from primary reserves?

A) Municipal bonds
B) Deposits at the Federal Reserve Bank
C) Cash in the bank's vault
D) Deposits held in other commercial banks