Deck 2: Financial Services: Depository Institutions

Question 1

2-15 Large money center banks are often primary dealers in the U.S.Treasury markets.

Answer 1

True

Question 2

2-20 Retail nontransaction savings and time deposits comprise the largest portion of deposits for commercial banks.

Answer 2

True

Question 3

2-12 The growth of the commercial paper market has led to a decline in the demand for business loans from commercial banks.

Answer 3

True

Question 4

2-2 Most of the change in the number of commercial banks since 1990 has been due to bank failures.

Question 5

2-4 Large money center banks finance most of their activities by using retail consumer deposits as the primary source of funds.

Question 6

2-16 Because of the large amount of equity on a typical commercial bank balance sheet,credit risk is not a significant risk to bank managers.

Question 7

2-1 In recent years,the number of commercial banks in the U.S.has been increasing.

Question 8

2-14 By converting to a bank holding company,an investment bank gains access to Federal Reserve lending facilities.

Question 9

2-13 The securitization of mortgages involves the pooling of mortgage loans for sale in the financial markets.

Question 10

2-6 Prior to the financial crisis of 2008,the return on equity for small community banks had been larger than for large money center banks.

Question 11

2-11 Since 1990,commercial banks decreased the proportion of business loans and increased the proportion of mortgages in their portfolios.

Question 12

2-5 Currently,federal standards do not allow investment banks to covert to a bank holding company structure.

Question 13

2-19 Money market mutual funds have attracted large amounts of retail savings and retail time deposits from commercial banks in recent years.

Question 14

2-3 Commercial banks have had limited power to underwrite corporate securities since 1987.

Question 15

2-10 All banks with assets greater than $10 billion are considered money center banks.

Question 16

2-17 Lehman Brothers failed during the recent financial crisis despite having access to the low cost sources of funds offered by the Federal Reserve.

Question 17

2-8 Money center banks rely more heavily on wholesale and borrowed funds as sources of liability funding than do community banks.

Question 18

2-9 Large banks tend to make business decisions based on personal knowledge of customers creditworthiness and business conditions in the local communities.

Question 19

2-7 Commercial banks with under $1 billion in assets have become a larger segment of the industry in recent years.

Question 20

2-18 A major difference between banks and other nonfinancial firms is the low amount of leverage in commercial banks.

Question 21

2-29 The dual banking system in the U.S.refers to the operation and establishment of large regional as well as small community banks.

Question 22

2-30 As of December 2009,the number of nationally chartered banks was greater than the number of state chartered banks.

Question 23

2-26 The use of off-balance-sheet activities and instruments will always reduce the risk to a bank.

Question 24

2-24 The movement of an off-balance-sheet asset or liability is dependent on the occurrence of a contingent event.

Question 25

2-21 Negotiable certificates of deposits are differentiated from fixed time deposits by their negotiability and active trading in the secondary markets.

Question 26

2-36 The DIDMCA of 1980 and the DIA of 1982 were the initial acts to begin the deregulation of the commercial banking industry.

Question 27

2-23 The growth in off-balance-sheet activities during the decade of the 1990s was due,in
large part,to the use of derivative contracts.

Question 28

2-37 The Riegle-Neal Act of 1994 removed many of the restriction on interstate banking that were originally imposed by the 1933 Glass Steagall Act.

Question 29

2-35 The primary objective of the 1933 Glass-Steagall Act was to prevent commercial banks from competing directly with commercial insurance companies.

Question 30

2-22 The maturity structure of the assets of commercial banks tends to be shorter than the maturity structure of liabilities.

Question 31

2-27 Although growing,the notional value of bank OBS activities remained less than the value of on-balance-sheet activities at the end of 2009.

Question 32

2-39 Savings banks and savings associations are savings institutions; with savings banks serving as the primary providers of residential mortgage loans,and savings associations concentrating on commercial loans and corporate bonds as well as mortgage assets.

Question 33

2-34 The primary objective of the 1927 McFadden Act was to restrict interstate bank branching.

Question 34

2-38 The Financial Services Modernization Act of 1999 allows commercial banking activities and securities underwriting to operate simultaneously under the same ownership structure.

Question 35

2-40 In general,the banking industry performed at higher levels of profitability in the decade of the 1990s than the decade of the 1980s.

Question 36

2-31 All commercial banks must be members of the Federal Reserve System.

Question 37

2-28 Commercial banks in the U.S.often are subject to several of the four regulatory agencies.

Question 38

2-32 Small banks make proportionately larger amounts of real estate loans than large banks.

Question 39

2-33 The Federal Reserve System has regulatory supervision over all holding company banks whether they include national- or state-chartered banks.

Question 40

2-25 The use of off-balance-sheet activities allows banks to practice regulatory tax-avoidance.

Question 41

2-43 The primary reason for the decline of the S&L industry was the passage of legislation that gave commercial lending powers to the S&L industry.

Question 42

2-56 According to the American Bankers Association,the tax-exempt status of credit unions is the equivalent of a $1 billion per-year subsidy to the industry.

Question 43

2-59 Which of the following FIs does not currently provide a payment function for their customers?

A)Depository institutions.
B)Insurance companies.
C)Finance companies.
D)Pension funds.
E)Mutual funds.

Question 44

2-58 All credit unions are nationally chartered and regulated by the National Credit Union
Administration.

Question 45

2-51 The credit union industry avoided much of the financial distress of the 1980s because of the short maturity and relatively lower credit risk of their assets.

Question 46

2-60 A consumer lending function is performed by each of the following FIs EXCEPT

A)mutual funds.
B)finance companies.
C)pension funds.
D)depository institutions.
E)insurance companies.

Question 47

2-49 Savings institutions enjoyed record profitability during the late 1990s and early 2000s.

Question 48

2-53 As with other DIs,profits or return on assets (ROA)is the primary goal of credit union management.

Question 49

2-54 A significant disadvantage for credit unions in competing with commercial banks is the severe restriction in the variety of products and services that they can offer.

Question 50

2-46 As a percent of total assets,savings institutions hold lower amounts of cash and U.S.Treasury securities than commercial banks.

Question 51

2-44 Savings associations and savings banks both are insured by insurance funds that are managed by the FDIC.

Question 52

2-48 Savings associations and savings banks are chartered and regulated by the Federal Reserve Bank.

Question 53

2-50 The common bond principle of credit unions emphasizes the depository and lending needs of credit union members.

Question 54

2-57 Compared to the average commercial bank,credit unions tend to have higher overhead expenses per dollar of assets.

Question 55

2-45 The savings association industry continues to be the primary lender of residential mortgages.

Question 56

2-52 The primary objective of the Reigle-Neal Act was to ease branching across state lines by banks.

Question 57

2-41 Commercial banks that have invested in Internet banking services and products have outperformed significantly those banks that have chosen to avoid these markets.

Question 58

2-42 Regulator forbearance is a policy of allowing economically insolvent FIs to continue in operation.

Question 59

2-47 The number of savings associations has been declining since 1990.

Question 60

2-55 A significant advantage for credit unions in competing with commercial banks is the tax-exempt status that has been granted to credit unions.

Question 61

2-93 The primary regulators of savings institutions are

A)the Federal Reserve and the FDIC.
B)the Office of Thrift Supervision and the FDIC.
C)the FDIC and the Office of the Comptroller of the Currency.
D)the Office of Thrift Supervision and the Comptroller of the Currency.
E)the Federal Reserve and the Comptroller of the Currency.

Question 62

2-113 This legislation replaced FSLIC with FDIC-SAIF.

Question 63

2-61 Which of the following FIs does not provide a business lending function?

A)Depository institutions.
B)Insurance companies.
C)Finance companies.
D)Pension funds.
E)Mutual funds.

Question 64

2-66 By late 2009,the number of branches of existing commercial banks in the U.S.approximated ________,which was a (an)_________ from 1985.

A)88,000; increase
B)43,000; increase
C)68,000; decrease
D)103,000; decrease
E)72,000; increase

Question 65

2-65 By late 2009,the number of commercial banks in the U.S.was approximately

A)2,200.
B)4,680.
C)6,900.
D)8,100.
E)12,700.

Question 66

2-76 One of the primary reasons that investment banks were allowed to convert to bank holding companies during the recent financial crisis was recognition that

A)their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks.
B)the industry had acquired too much capital during the previous decade.
C)bank holding companies needed the ability to underwrite new issues of corporate securities.
D)it was the only way an investment bank could qualify for federal bailout funds.
E)the Federal Reserve was unable to purchase troubled assets from investment banks,but they could from bank holding companies.

Question 67

2-114 This legislation limited thrift investments in non-residential real estate.

Question 68

2-62 As of 2009,commercial banks with over $10 billion in assets constituted approximately ____ percent of the industry assets and numbered approximately_____.

A)50; 310
B)60; 165
C)70; 525
D)80; 85
E)90; 440