Question 1

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

Accepted Answer

Credit unions typically extend the duration of their loan portfolios by making mortgage loans, as these are usually long-term loans compared to other types of lending.

Question 2

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

Accepted Answer

Congress allowed thrifts to make consumer loans as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and other regulatory changes, aiming to help them diversify their assets and manage interest rate risk more effectively by shortening the duration of their assets.

Question 3

Most savings institutions are not involved in securitization.

Accepted Answer

Many savings institutions are involved in securitization as a way to manage risk and improve liquidity by converting loans into marketable securities.

Question 4

Most credit unions have a lower cost structure than commercial banks.

Accepted Answer

The answer of Most credit unions have a lower cost...

Question 5

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.

Accepted Answer

Credit unions were indeed originally organized on the principle of members pooling their funds to provide low-cost loans to each other, emphasizing mutual assistance and cooperation.

Question 6

Thrifts face less interest rate risk and manage it better than they did in the past.

Accepted Answer

Thrifts have improved their interest rate risk management practices significantly since the 1980s, adopting more sophisticated tools and strategies to mitigate exposure to changing interest rates.

Question 7

"Negative maturity GAP" S&Ls may see an increase in profits when short term interest rates fall.

Accepted Answer

A negative maturity gap for Savings and Loan associations (S&Ls) means that their liabilities (e.g., deposits) reprice or mature faster than their assets (e.g., long-term loans). When short-term interest rates fall, the cost of their liabilities decreases more quickly than the yield on their assets, potentially increasing their profits.

Question 8

Mutual institutions are not for profit whereas stockholder institutions are managed to make the most profits they can.

Accepted Answer

The answer of Mutual institutions are not for profit whereas...

Question 9

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

Accepted Answer

The Office of Thrift Supervision was abolished in 2011, and its responsibilities were transferred to other agencies like the Office of the Comptroller of the Currency.

Question 10

Thrifts face significant interest rate risk because their primary loans are mortgages and their primary sources of funds are deposits.

Accepted Answer

Thrifts, such as savings and loan associations, primarily provide mortgages funded by customer deposits. Since the interest rates on these long-term mortgages are fixed but the rates on deposits can fluctuate, thrifts are exposed to significant interest rate risk if rates on deposits increase.

Question 11

Credit union "centrals" pool individual credit union funds to provide cheaper investments and liquidity.

Accepted Answer

Credit union centrals act as a central finance facility for member credit unions, pooling resources to provide services such as cheaper investments and liquidity support, which individual credit unions might not be able to afford or manage on their own.

Question 12

Mortgages remain the most important asset of savings institutions.

Accepted Answer

Mortgages are the primary asset for savings institutions because they make up the largest portion of their lending activities, providing the main source of income through interest payments from borrowers.

Question 13

Adjustable rate mortgages insulate help thrifts against credit risk.

Accepted Answer

Adjustable rate mortgages help thrifts manage interest rate risk, not credit risk, by allowing the interest rates on loans to adjust with market conditions.

Question 14

The Federal Savings and Loan Insurance Corporation insures deposits of savings institutions.

Accepted Answer

The Federal Savings and Loan Insurance Corporation (FSLIC) was abolished in 1989, and its responsibilities were transferred to the Federal Deposit Insurance Corporation (FDIC), which now insures deposits at savings institutions.

Question 15

"Mutual" institutions are owned by their depositors.

Accepted Answer

Mutual institutions, such as mutual savings banks and credit unions, are owned by their members or depositors, rather than by shareholders.

Question 16

Aggregate finance company assets declined by almost 10 percent from 2009 to June 2015.

Accepted Answer

The statement is true as aggregate finance company assets did decline by almost 10 percent during that period, reflecting the economic conditions and regulatory changes post-2008 financial crisis.

Question 17

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

Accepted Answer

S&Ls (Savings and Loan Associations) were originally established to promote homeownership by providing a place for people to save and to borrow money for mortgages, not to take advantage of a tax loophole.

Question 18

CUNA assists savings banks in securitizing mortgages to reduce their interest rate risk.

Accepted Answer

CUNA (Credit Union National Association) primarily represents and provides services to credit unions, not savings banks, and its focus is not on assisting with the securitization of mortgages.

Question 19

Credit unions have higher loan losses than commercial banks.

Accepted Answer

Credit unions typically have lower loan losses than commercial banks because they often have a more personal relationship with their members, allowing for better risk assessment and management.

Question 20

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

Accepted Answer

Federal Home Loan Banks provide liquidity to member institutions, not regulatory oversight; regulatory functions are performed by bodies like the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

Quiz 16: Thrift Institutions and Finance Companies