Deck 14: Banking Regulation

Question 1

For much of U.S. history, banks have been limited in how much they could pay in interest on deposits, but the interest rate ceiling was done away with by the passage of the Depository Institutions Deregulation and Monetary Control Act, which was implemented in what decade?

A)1950s
B)1960s
C)1980s
D)2000s

Answer 1

C

Question 2

In addition to on-site examinations, bank regulators in the United States do which of the following?

A)They examine detailed quarterly reports of both the operations and financial condition of banks; in the case of violations, they can issue a cease and desist order.
B)They examine detailed quarterly reports of both the operations and financial condition of banks; in case of violations, the bank can be brought to trial in a special banking court.
C)They examine detailed annual reports of both the operations and financial condition of the bank; in case of violations, they can issue a cease and desist order.
D)They examine detailed quarterly reports of both the operations and the financial condition of the bank; in case of violations, the bank can be brought to trial in a special banking court.

Answer 2

A

Question 3

Which of the following is true of the European Banking Authority (EBA)?

A)It was created in 1995 to provide some banking regulations across the European Union and to ensure similar regulations across nations.
B)It was created in 2011 to provide consistent banking regulations across the European Union and to eliminate national-level regulations.
C)It was created in 2011 to provide some banking regulations across the European Union and to ensure similar regulations across nations.
D)It was created in 1995 to provide consistent banking regulations across the European Union and to eliminate national-level regulations.

Answer 3

C

Question 4

The __________ attempt to set international standards for bank capital.

A)International Banking Accords
B)Vienna Agreements
C)Basel Accords
D)World Bank Capital Agreements

Question 5

In 1997, the Federal Reserve eased banking regulations so that commercial banks could do what?

A)Commercial banks could underwrite stocks and bonds.
B)Commercial banks could directly take over existing investment banks.
C)Commercial banks could pay interest on checking accounts.
D)Commercial banks could create a bank holding company.

Question 6

The goal of Regulation Q was to

A)limit competition between banks.
B)insure bank profitability.
C)encourage banks to compete in ways other than the interest paid on their accounts.
D)prevent bank panics.

Question 7

What was one of the goals of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010?

A)Remove the restriction on the paying of interest on demand deposits that had been established with Regulation Q.
B)Impose interest rate ceilings on a variety of bank deposit accounts.
C)Offer "gifts" in exchange for deposits.
D)Create new financial products that were not technically demand deposits.

Question 8

Which of these is true of the Canadian banking system?

A)It was created as a system of large financial institutions; it is consistently ranked as one of the world's best banking systems.
B)It consists mainly of small, local banks; it is consistently ranked as one of the world's best banking systems.
C)It is well-regulated by a number of government agencies; it is considered a moderately sound banking system.
D)It is only slightly regulated by a number of government agencies; it is considered a moderately sound banking system.

Question 9

Which of the following is true if someone wants to acquire a bank charter in the United States?

A)A bank charter stipulates how a bank will be organized and regulated; it may be issued at the federal level or by the UN Committee of Bankers.
B)A bank charter is a legal document stipulating how a bank will be organized; it must be issued at the federal level.
C)A bank charter stipulates how a bank will be organized and regulated; it may be issued at the state or federal level.
D)A bank charter is a legal document that includes bank regulations that apply to all banks; it must be issued at the level of the relevant state.

Question 10

Periodic physical examinations of banks by bank regulators typically include

A)inspection of the quality of a bank's management and the qualifications of its employees.
B)inspection of the quality of a bank's assets and collection policies.
C)inspection of the quality of a bank's management, assets, lending policies, and compliance with banking regulations.
D)a meeting with the bank's executives and its employees.

Question 11

For bank executives, the level of bank capital and the level of executive compensation are

A)exactly equal.
B)unrelated.
C)directly related.
D)inversely related.

Question 12

A bank charter may be issued by which of these agencies?

A)The Federal Reserve
B)A branch of the US Treasury Department
C)In large cities, the relevant municipal agency
D)Only by state governments

Question 13

In 1994, Congress passed a banking act that allowed banks to do what?

A)Banks could merge across state lines to have branches in multiple states.
B)Banks could provide FDIC insurance to depositors up to $150,000.
C)Banks could maintain bank holding companies.
D)Banks could underwrite bonds and offer discount brokerage services.

Question 14

The FDIC currently insures deposits up to what amount?

A)$100,000
B)$150,000
C)$200,000
D)$250,000

Question 15

The FDIC prefers to use the purchase and assume strategy to deal with a failed bank rather than the pay off and liquidate approach because it is typically

A)less risky.
B)less complicated.
C)more likely to succeed.
D)less expensive.

Question 16

Bank regulators use the CAMELS system to provide a standardized assessment of a bank, where CAMELS stands for

A)Cash, Assets, Management, Equity, Leverage, and Stability.
B)Capital, Assets, Management, Earnings, Liquidity, and Sensitivity.
C)Capital, Assets, Management, Earnings, Liabilities, and Stability.
D)Cash, Assets, Management, Earnings, Liabilities, and Stability.

Question 17

The lending or extension of credit to a single entity is limited to _____ of a bank's combined capital and reserves on an unsecured loan.

A)10.0%
B)12.5%
C)15.0%
D)17.5%

Question 18

Tristate Bank has just had a visit from the bank examiner and received a rating of 5 in the CAMELS categories of management and earnings; in each of the other categories, the rating was a 4. If you were an investor in this bank, how would you most likely react to this news?

A)Wait for the next CAMELS rating and then decide what to do
B)Liquidate my investment as soon as possible because with these ratings, this bank might be in significant trouble
C)Decrease my investment, a little at a time
D)Increase my investment

Question 19

Since 1933, the FDIC has offered deposit insurance to banks to protect depositors from losses if the bank should fail. When was this amount increased?

A)In the 1950s, and every decade thereafter
B)In the 1970s, after a period of high inflation
C)In 1992, during an economic boom
D)In 2008, after the global financial crisis

Question 20

When the FDIC decides to deal with a failed bank using the pay off and liquidate policy, what is being paid off?

A)Severance packages to the bank's workers and executives
B)Deposit balances and payouts to stockholders
C)Amounts due to the bank's vendors and partial payouts to stockholders
D)Deposit balances to the bank's depositors only

Question 21

Having multiple entities responsible for issuing bank charters in the United States has given rise to the problem of

A)regulatory entrapment.
B)regulator shopping.
C)intellectual capture.
D)regulator indifference.

Question 22

The Truth In Lending Act of 1968 was passed with the goal to ensure which of the following?

A)CRA certification
B)the regulation of consumer credit information
C)the limitation of unfair or abusive lending practices
D)full disclosure of all the terms and costs of a loan

Question 23

The widely held belief that whatever benefits the financial industry must also be beneficial to all of society is known as

A)intellectual capture.
B)regulatory capture.
C)regulator shopping.
D)too big to fail.

Question 24

What banking legislation was passed in 1977 to ensure that banks could only merge or expand their branches if they were fairly lending and providing financial services to people across their current geographical area?

A)Community Reinvestment
B)Fair Credit Reporting
C)Dodd-Frank Wall Street Reform and Consumer Protection
D)Community Redlining

Question 25

In the too big to fail policy, there is an inherent tension between __________ and __________.

A)reducing systemic risk; increasing moral hazard
B)increasing systemic risk; reducing moral hazard
C)increasing liquidity; reducing return on investment
D)reducing systemic risk; increasing adverse selection

Question 26

How does the CAMELS bank rating system work?

Question 27

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 were passed with the goal to ensure which of the following?

A)CRA certification
B)the regulation of consumer credit information
C)the limitation of unfair or abusive lending practices
D)full disclosure of all the terms and costs of a loan

Question 28

Banks that are too big to fail are prime candidates for bailouts when they experience solvency issues.

Question 29

What are the arguments for and against allowing banks to hold equities as part of their assets?

Question 30

The Fair Credit Reporting Act of 1970 was passed with the goal to ensure which of the following?

A)CRA certification
B)the regulation of consumer credit information
C)the limitation of unfair or abusive lending practices
D)full disclosure of all the terms and costs of a loan

Question 31

What is the significance of the Glass-Steagall Act?

Question 32

When bankers are in control of the regulatory agencies to the point that regulations are enforced in ways favorable to the banks, it is known as

A)regulatory capture.
B)intellectual capture.
C)finger pointing.
D)regulator shopping.

Question 33

In the United Kingdom, the Prudential Regulation Committee requires large banks to legally separate many of their retail banking services away from riskier parts of the institution.

Question 34

The complex web of regulators in the US financial industry has contributed to the less than stellar performance of the financial system.

Question 35

A dual banking system is one in which charters can be granted by national or state/provincial authorities.