Q&A Hero

Q: The first state in the U.S. to allow out of state acquisitions was A. New York. B. California. C. Florida. D. Maine. E. Alaska.

Q: These interstate banking laws allowed an out-of-state bank to acquire an in-state target bank even if the acquirer's home state did not give banks from the target's state similar acquisition powers. A. Nationwide laws. B. Nationwide reciprocal. C. Regional reciprocal. D. All of the above. E. Answers A and B only.

Q: An agreement to allow competition from certain geographic areas, usually in return for the ability to compete within those areas, is A. a federal charter. B. an integrated agreement. C. a holding company agreement. D. an interstate banking pact. E. a state charter.

Q: An organization form that establishes bank subsidiaries rather than branches to expand is A. an unit bank. B. a multibank holding company. C. a one-bank holding company. D. a representative office. E. a nonbank bank.

Q: An organization form that limits business transactions to a single location is A. an unit bank. B. a multibank holding company. C. a one-bank holding company. D. an interstate bank. E. a fully integrated universal bank.

Q: Which of the following items has not been a factor in the erosion of interstate banking restrictions? A. The purchase of troubled banks. B. The establishment of nonbank banks. C. The Bank Holding Company Act Amendments of 1970. D. The expansion of OBHC activities. E. The establishment of regional and national banking pacts.

Q: Identify the legislation that restricted the branching of nationally-chartered banks to the same guidelines as allowed to state-chartered banks. A. Bank Holding Company Act. B. McFadden Act. C. Garn-St. Germain Act. D. Glass-Steagall Act. E. Competitive Equality in Banking Act.

Q: The passage of which regulation extended the interstate acquisition powers of banks to encompass healthy thrifts? A. Bank Holding Company Act. B. McFadden Act. C. Garn-St. Germain Act. D. Financial Institutions Reform, Recovery, and Enforcement Act. E. Glass-Steagall Act.

Q: The Douglas amendment to the Bank Holding Company was passed to address a potential loophole to interstate banking posed by A. unit banks. B. multibank holding companies. C. one-bank holding companies. D. foreign banks. E. reciprocal agreements.

Q: During most of the twentieth century the banking industry was able to continue to expand geographically by A. utilizing multi-bank holding companies. B. utilizing one-bank holding companies. C. successfully implementing reciprocal regional banking pacts. D. All of the above. E. Answers A and B only.

Q: Restrictions on branching occurred initially at the state level because A. money center banks feared a loss of correspondent business. B. small unit banks feared a loss of business from the larger branching banks. C. improved communications and customer needs. D. All of the above. E. Answers A and B only.

Q: Identify the procompetitive effect of banks' expansion of their securities activities. A. Reduces the degree of underpricing of new issues. B. Encourages stuffing of fiduciary accounts. C. Increased provision of cheap loans on the implicit condition that this loan is used to purchase securities. D. Use of lending powers by a bank to coerce a customer to buy the products sold by its securities affiliate. E. Use of inside information by a bank to set the prices, or help the distribution of securities offerings by its affiliate.

Q: Firewalls are A. barriers introduced to protect the bank against losses. B. mechanisms to insure bank shareholders against loss. C. regulations restricting the proliferation of Section 20 subsidiaries. D. limitations on capital flows to the parent company. E. safety codes required in tall skyscrapers.

Q: Chinese Walls are A. internally imposed barriers that limits the flow of confidential client information among departments or areas. B. regulatory barriers that are introduced to insulate the bank against losses. C. regulations that prohibit a bank from lending anything at all to its securities affiliates. D. restrictions on a bank holding company that prevents the use of subsidiary funds to support ailing affiliates. E. hurdles created by excessive drain in the form of dividends and fees from a bank.

Q: What is the impact of underpricing a securities issue? A. The underwriter loses while the issuing firm gains. B. Both the underwriter and the outside investor gains while the issuing firm loses. C. The outside investor loses while the issuing firm gains. D. Both the underwriter and the outside investor loses while the issuing firm gains. E. All three parties lose when the securities are underpriced.

Q: According to economists, this is the main reason for underpricing of new issues. A. Lack of competition among existing investment banks. B. Entry of banks into the investment banking sector. C. Monopoly power of the existing investment banks. D. Mismatch of demand and supply of securities. E. Risk premium for information advantage possessed by issuers.

Q: A bank threatens to credit ration unless the customer agrees to let the bank's securities affiliate do its securities underwritings. Identify the conflict of interest in this scenario. A. Salesperson's Stake. B. Stuffing fiduciary accounts. C. Tie-ins. D. Third-party loans. E. Information transfer.

Q: Concern about potential abuses of fiduciary responsibility has been used to justify product segmentation on the grounds of A. safety and soundness issues. B. economy of scale and scope issues. C. conflict of interest issues. D. deposit insurance issues. E. regulatory oversight issues.

Q: Concern about the ability to analyze a more complex corporate structure has been used to justify product segmentation on the grounds of A. safety and soundness issues. B. economy of scale and scope issues. C. conflict of interest issues. D. deposit insurance issues. E. regulatory oversight issues.

Q: Concern about the financial impact of an extension of the federal safety net has been used to justify product segmentation on the grounds of A. safety and soundness issues. B. economy of scale and scope issues. C. conflict of interest issues. D. deposit insurance issues. E. regulatory oversight issues.

Q: Concern about the improper transfer of inside information has been used to justify product segmentation on the grounds of A. safety and soundness issues. B. economy of scale and scope issues. C. conflict of interest issues. D. deposit insurance issues. E. regulatory oversight issues.

Q: Concern about the cost of managing a widely diversified financial company has been used to justify product segmentation on the grounds of A. safety and soundness issues. B. economy of scale and scope issues. C. conflict of interest issues. D. deposit insurance issues. E. regulatory oversight issues.

Q: Concern about bank solvency has been used to justify product segmentation on the grounds of A. safety and soundness issues. B. economy of scale and scope issues. C. conflict of interest issues. D. deposit insurance issues. E. regulatory oversight issues.

Q: Which of the following is NOT a potential conflict of interest identified by regulators and academics? A. Salesperson's stake. B. Stuffing fiduciary accounts. C. Bankruptcy risk transference. D. Procompetitive effects. E. Third-party loans.

Q: Identify a condition under which conflicts of interest are exploitable. A. Market for bank service is very competitive. B. Banks have monopoly power over their customers. C. Information flows between the customer and the bank are symmetric. D. Bank does not possess any information advantage over its customers. E. Bank places a relatively high value on its reputation.

Q: Which action of the holding company to help its securities affiliate can damage the financial health of its banking subsidiary? A. Downstreaming funds from the subsidiary and then upstreaming it to the securities affiliate. B. Upstreaming funds from the securities affiliate and then downstreaming it to the bank subsidiary. C. Indulging in product diversification. D. Upstreaming funds from the bank subsidiary and then downstreaming it to the securities affiliate. E. Diversifying the earnings stream of a banking company geographically.

Q: Which of the following is not a reasonable argument for the increase in the number of banks that can compete in security underwriting activities? A. Small firms gain increased access to the capital markets. B. Lower commission and fee expense for firms issuing securities. C. Issuing firms realize an increase in the degree of underpricing of new issues. D. The market for securities underwriting will see a decline in market concentration. E. More competition will increase the new issue proceeds to the issuing firm.

Q: A bank holding company has a banking affiliate and a securities affiliate. If the securities affiliate fails, it could cause the bank to also fail because A. the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming. B. the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming. C. the bank holding company could induce the banking affiliate to make loans to the securities affiliate. D. Answers A and C only. E. Answers B and C only.

Q: An underwriter is quoting the following rates for the issue of new securities on behalf of a firm on a firm commitment basis: $64.00-64.25. 2,000,000 shares are being offered. A. The maximum amount that can be earned by the underwriter (ignoring other costs) $1,000,000. B. The maximum amount that can be earned by the underwriter (ignoring other costs) is $500,000. C. The minimum amount that can be earned (ignoring other costs) by the underwriter is $0. D. The minimum amount that can be earned (ignoring other costs) by the underwriter is -$500,000. E. The minimum amount that can be earned (ignoring other costs) by the underwriter is -$1,000,000.

Q: If the firm commitment price is $15 and one million shares are sold in the primary market for $13 and then resold in the secondary market for $13.25, what is the underwriter's profit/loss? A. -$2,000,000. B. $2,000,000. C. -$1,750,000. D. $1,750,000. E. 0

Q: If the firm commitment price is $15 and one million shares are sold in the primary market for $15.50 and then resold in the secondary market for $15.75, what is the underwriter's profit/loss? A. -$500,000. B. $500,000. C. $750,000. D. -$750,000. E. 0

Q: An investment bank may take a big loss when underwriting an issue on a firm commitment basis because A. it may overestimate the demand for the shares by the market. B. it may underestimate the demand for the shares by the market. C. interest rates may rise during the offering period. D. security prices in general may increase during this period. E. Answers A and D only.

Q: In firm commitment underwriting, the underwriter's spread is A. the bid ask spread in the secondary market. B. the interest spread earned by the FI. C. the difference between the underwriter's buy and sell price. D. the difference between the offer price under a firm commitments as opposed to a best efforts underwriting contract. E. the commission per share.

Q: Which of the following describes a firm commitment underwriting? A. Finding a large institutional buyer or investor such as another FI for a private placement. B. Investment bankers acting as agents on a fee basis related to their success in placing the issue. C. Investment bankers act as agents and purchase securities from the issuer at one price for sale to the public at a different price. D. Bank using its lending powers to coerce customers to buy the products sold by its securities affiliate. E. Purchase of securities from the issuer at one price for resale to the public at a slightly higher price.

Q: As of the end of 2012, the total worldwide assets of the shadow banking system was approximately A. $12 trillion B. $37 trillion C. $52 trillion D. $67 trillion E. $91 trillion

Q: A bank holding company must obtain the approval of the Fed before acquiring more than _____ of the shares of an additional bank, bank holding company, or financial services firm. A. 5 percent B. 10 percent C. 15 percent D. 25 percent E. 50 percent

Q: How could insurance companies get around the restrictive provisions imposed by the bank holding company act of 1956? A. Through the organizational mechanism of establishing nonbank bank subsidiaries. B. By opening federally chartered thrifts. C. By offering credit-related life, accident, health, or unemployment loans. D. By buying a full-service bank and then divesting its demand deposits or commercial loans. E. Answers A and D only.

Q: The Financial Services Modernization Act of 1999 A. stipulates that a financial services holding company that engages in commercial banking, investment banking, and insurance activities will be functionally regulated. B. allows bank holding companies to open insurance underwriting affiliates. C. requires banks that underwrite and sell insurance to operate under the same set of state regulations as insurance companies. D. All of the above. E. Answers A and B only.

Q: The Financial Services Modernization Act allowed for A. the creation of financial services holding companies. B. the replacement of all previous regulatory agencies with one super regulator. C. the placement of some securities underwriting in bank subsidiaries. D. All of the above. E. Answers A and C only.

Q: This legislation explicitly stated that banking and insurance were not closely related activities. A. The McCarran-Ferguson Act of 1945. B. Savings and Loan Holding Company Act of 1968. C. The Garn-St.Germain Depository Institutions Act of 1982. D. The Competitive Equality Banking Act of 1987. E. The International Banking Act of 1978.

Q: This legislation defines a bank as any institution that accepts deposit insurance coverage. A. The McCarran-Ferguson Act of 1945. B. The Bank Holding Company Act of 1956. C. The Garn-St. Germain Act of 1982. D. The Competitive Equality Banking Act of 1987. E. The International Banking Act of 1978.

Q: This legislation restricts insurance companies from owning or being affiliated with full service banks. A. The McCarran-Ferguson Act of 1945. B. The Bank Holding Company Act of 1956. C. The Garn-St. Germain Depository Institutions Act of 1982. D. Savings and Loan Holding Company Act of 1968. E. The International Banking Act of 1978.

Q: Permissible section 20 subsidiary activities include A. insurance activities. B. hedging. C. factoring. D. extensions of lines of credit. E. investment banking activities.

Q: Identify the action taken by OCC and the Federal Reserve in 1997, to expand the permitted activities of bank holding companies. A. Repealed the Glass-Steagall barriers between commercial banking and investment banking. B. Allowed commercial banks to acquire directly existing investment banks. C. Allowed investment banks to offer banking products. D. Allowed investment banks to offer deposit products. E. All of the above.

Q: The Pecora Commission's findings about the 1929 stock market crash resulted in the A. Financial Services Modernization Act. B. Glass-Steagall Act. C. Federal Reserve Act. D. International Banking Act. E. Garn St. Germain Depository Institutions Act.

Q: The economic value of narrowly defined bank franchises has declined because A. product line restrictions inhibit the ability of an FI to optimize the set of financial services it can offer. B. product restrictions limit the ability of FI managers to adjust flexibly to shifts in the demand for financial products. C. product restrictions limit the ability of FI managers to adjust flexibly to shifts in costs due to technology and related innovations. D. All of the above. E. Answers A and B only.

Q: Nonbank institutions have NOT gained competitive momentum for which of the following financial products? A. Commercial paper. B. Money market mutual funds. C. Annuities. D. Business credit market. E. Savings accounts.

Q: Which of the following has proven to be strong competition for bank deposit and transaction account products? A. Commercial paper market. B. Money market mutual funds. C. Finance company business credit. D. Hedge funds. E. None of the above.

Q: The banking industry in the U.S. has faced increased competition A. on the liability side of the balance sheet from the commercial paper market. B. on the asset side of the balance sheet from money market mutual funds. C. on the liability side of the balance sheet from money market mutual funds. D. on the asset side of the balance sheet from the commercial paper market. E. Answers C and D only.

Q: Commercial banks have expanded their activities in each of the following ways EXCEPT A. opening nonbank banks. B. grandfathering previously permitted activities. C. expanding off shore. D. petitioning regulators for enhanced powers. E. acquiring nonfinancial firms.

Q: despite a sovereign debt problem that plagued Greece in 2010, by 2012 U.S. Banks had increased their exposure to Greek debt.

Q: A disadvantage to international bank expansion is the potential increase in the monitoring and information collection costs in some overseas markets.

Q: International expansion often produces revenue-risk diversification benefits for U.S. banks.

Q: International expansion by a commercial bank should provide increased access to funding sources.

Q: One result of the FBSEA was the increase in the regulatory burden of foreign banks in the U.S.

Q: Offices of foreign banks may be examined by the Federal Reserve under the FBSEA of 1991.

Q: The FBSEA of 1991 required a foreign bank to have Fed approval to establish a branch as a new entry, but does not require such approval if the entry is by acquisition.

Q: The purpose of the Foreign Bank Supervision Enhancement Act of 1991 was to extend federal authority over foreign banking organizations in the U.S.

Q: The effect of the International Banking Act of 1978 was to accelerate the expansion of foreign bank activities in the U.S. primarily because of their access to the Federal Reserve's discount window, Fedwire, and FDIC insurance.

Q: The International Banking Act of 1978 attempted to provide a level playing field for domestic and foreign banks in U.S. banking markets.

Q: A foreign bank subsidiary in the U.S. is restricted to using only funds borrowed on the wholesale and money markets.

Q: The European Community Second Banking Directive has aided the international competitive position of European banks by creating a single banking market in Europe.

Q: Large size is an important characteristic in international banking because it gives a bank a greater ability to diversify across borders.

Q: The NAFTA agreement and other agreements reached through the help of the World Trade Organization should reduce some of the restrictions that have face U.S. banks in attempts to enter emerging market countries.

Q: U.S. banking offices abroad normally are permitted by the Federal Reserve System to engage in activities that are allowed in the foreign country even when such activities are not permitted in the U.S.

Q: The USA Patriot Act of 2001 prohibits U.S. banks from providing banking services to foreign banks.

Q: The emergence of the Euro as a uniform medium of exchange is expected to cause the importance of the dollar to increase among major European countries.

Q: U.S. financial institutions have expanded abroad in recent years, although their foreign counterparts have been prohibited from expanding into the U.S.

Q: Research on bank mergers for the decade of the 1990s found that improved performance of the merged bank occurred because of both revenue enhancements and cost reduction.

Q: Merger premiums tend to be higher for target banks in competitive environments, but for which the target bank's loan portfolios are of high quality.

Q: The use of the Herfindahl-Hirschman Index (HHI) to measure market concentration is encouraged for banks because of the ease of separating banks from thrifts and insurance companies.

Q: Success in a merger from revenue enhancement is more likely if the markets into which expansion occurs are less than fully competitive.

Q: In order to achieve a more stable revenue stream in a merger, the asset and liability portfolios of the two institutions should have similar credit, interest rate, and liquidity characteristics.

Q: The Garn-St Germain Act is an interstate banking law that allows banks to branch on an interstate basis rather than building more expensive holding company structures.

Q: Interstate banking barriers have deteriorated in part because of the decisions to deal with the failing thrift industry by allowing acquiring firms to cross state lines.

Q: Reciprocal banking pacts allowed the non-state companies to purchase banks as long as the purchase permission went in both directions.

Q: By the early 1990s interstate banking pacts basically had opened the doors for nearly all banks to practice interstate branching in any geographic locations.

Q: A one bank holding company is a parent bank holding company with only one subsidiary involved in banking activities.

Q: In the middle part of the twentieth century, large banks addressed the issue of interstate branch banking restrictions by forming multibank holding companies with bank subsidiaries in different states.

Q: The establishment of a presence in local markets by insurance companies is reasonably inexpensive because of low capital requirements established by state regulators.