Q&A Hero

Q: By late 2012, the number of branches of existing commercial banks in the U.S. approximated ________, which was a(an) _________ from 1985. A. 83,000; increase B. 43,000; increase C. 68,000; decrease D. 103,000; decrease E. 72,000; increase

Q: By late 2012, the number of commercial banks in the U.S. was approximately A. 2,200. B. 4,680. C. 6,170. D. 8,100. E. 12,700.

Q: The largest liability on U.S. commercial banks' balance sheet as of September 30. 2012 was A. investment securities. B. non-transaction accounts. C. transaction accounts. D. borrowings. E. cash.

Q: The largest asset class on U.S. commercial banks' balance sheet as of September 30, 2012 was A. investment securities. B. commercial and industrial loans. C. real estate loans. D. cash. E. deposits.

Q: As of 2012, 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; 90 E. 90; 440

Q: 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.

Q: 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.

Q: 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.

Q: All credit unions are nationally chartered and regulated by the National Credit Union Administration.

Q: Compared to the average commercial bank, credit unions tend to have higher overhead expenses per dollar of assets.

Q: 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.

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

Q: 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.

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

Q: The primary objective of the Reigle-Neal Act (1994) was to ease branching across state lines by banks.

Q: 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.

Q: Credit unions operate on a common bond principle which emphasizes the depository and lending needs of credit union members.

Q: Savings institutions enjoyed record profitability during the late 1990s and early 2000s.

Q: Savings associations and savings banks are chartered and regulated by the Federal Reserve Bank.

Q: The number of savings associations has been declining since 1990.

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

Q: The savings association industry continues to be the primary lender of residential mortgages.

Q: Savings associations and savings banks both are insured by insurance funds that are managed by the FDIC.

Q: 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.

Q: Regulator forbearance is a policy of allowing economically insolvent FIs to continue in operation.

Q: Commercial banks that have invested in Internet and mobile banking services and products have significantly outperformed those banks that have chosen to avoid these markets.

Q: In general, the banking industry performed at higher levels of profitability in the decade of the 1990s than the decade of the 1980s.

Q: 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.

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

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

Q: The DIDMCA of 1980 and the DIA of 1982 were the initial acts to begin the deregulation of the commercial banking industry.

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

Q: The primary objective of the 1927 McFadden Act was to restrict interstate bank branching.

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

Q: Small banks make proportionately larger amounts of real estate loans than large banks.

Q: All commercial banks must be members of the Federal Reserve System.

Q: As of December 2012, the number of nationally chartered banks was greater than the number of state chartered banks.

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

Q: Commercial banks in the U.S. often are subject to several of the four regulatory agencies.

Q: Although growing, the notional value of bank OBS activities remained less than the value of on-balance-sheet activities at the end of 2012.

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

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

Q: The movement of an off-balance-sheet asset or liability to an on-balance-sheet item is dependent on the occurrence of a contingent event.

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

Q: The maturity structure of the assets of commercial banks tends to be shorter than the maturity structure of liabilities.

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

Q: Retail nontransaction savings and time deposits comprise the largest portion of deposits for commercial banks.

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

Q: A major difference between banks and other nonfinancial firms is the low amount of leverage in commercial banks.

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

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

Q: Large money center banks are often primary dealers in the U.S. Treasury markets.

Q: By converting to a bank holding company, an investment bank gains access to Federal Reserve lending facilities.

Q: The securitization of mortgages involves the pooling of mortgage loans for sale in the financial markets.

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

Q: Since 1990, commercial banks decreased the proportion of business loans and increased the proportion of mortgages in their portfolios.

Q: All banks with assets greater than $10 billion are considered money center banks.

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

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

Q: In terms of total assets, commercial banks with under $1 billion in assets have become a larger segment of the industry in recent years.

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

Q: Currently, federal standards do not allow investment banks to covert to a bank holding company structure.

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

Q: Commercial banks have had limited power to underwrite corporate securities since 1987.

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

Q: In recent years, the number of commercial banks in the U.S. has been increasing.

Q: Of the ten largest banks in the world at the beginning of 2012, how many were U.S. banks? A. 0. B. 1. C. 2. D. 4. E. 8.

Q: The recent financial crisis highlighted, in retrospect, how heavily households and businesses had come to rely on FIs to act as specialists in A. generating profits and lowering costs. B. risk measurement and management. C. investment advice and brokerage services. D. time intermediation and denomination mediation. E. derivative securities and interbank borrowing.

Q: In what year did housing prices begin to deteriorate leading to a jump in defaults in the subprime mortgage markets and the onset of the recent financial crisis? A. 2001. B. 2003. C. 2006. D. 2008. E. 2010.

Q: The housing bubble that began building in 2001 was primarily the result of A. the availability of low-cost affordable homes. B. low interest rates and increased liquidity provided by the Federal Reserve. C. a change in income tax policy that favored home ownership. D. increased demand for U.S. real estate by international investors. E. lack of available residential rental property.

Q: All of the following are examples of participants in the shadow banking system EXCEPT A. money market mutual funds (MMMFs). B. structured investment vehicles (SIVs). C. credit hedge funds. D. limited-purpose finance companies. E. credit unions.

Q: As DIs made a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model over the last decade, A. banks became more financially stable. B. it became easier to measure the riskiness of individual loans. C. there was a dramatic increase in systematic risk of the financial system. D. the Federal Reserve decreased the number of services that banks could provide. E. it became more difficult for households to obtain credit.

Q: When a DI makes a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model, the change is likely to result in A. increased operating costs. B. increased interest rate risk. C. increased liquidity risk. D. decreased monitoring costs. E. decreased fee income.

Q: Investment companies are successful in attracting business away from banks and insurance companies primarily because they A. guarantee higher rates of return on savers' funds. B. remove interest rate risk for the saver. C. have no liquidity risk. D. give savers cheaper access to the direct securities markets. E. offer lower loan rates.

Q: A significant recent trend in the provision of financial services is that households increasingly prefer denomination intermediation and information services provided by A. mutual funds and money market mutual funds. B. commercial banks. C. insurance companies. D. hedge funds. E. investment banks.

Q: Which of the following repealed the 1933 Glass-Steagall barriers between commercial banking, insurance, and investment banking? A. Financial Institutions Reform Recovery and Enforcement Act (1989). B. Financial Services Modernization Act (1999). C. Competitive Equality in Banking Act (1987). D. The Bank Holding Company Act (1956). E. Garn-St. Germain Depository Institutions Act (1982).

Q: Which of the following groups of FIs have experienced the highest percentage growth in assets in the U.S. financial services industry during the past sixty years? A. Commercial banks. B. Thrifts. C. Life insurance companies. D. Investment companies. E. Finance companies.

Q: Safety and soundness regulations include all of the following layers of protection EXCEPT A. the provision of guaranty funds. B. requirements encouraging diversification of assets. C. the creation of money for those FIs in financial trouble. D. requiring minimum levels of capital. E. monitoring and surveillance.

Q: The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system EXCEPT A. encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. B. encouraging banks to limit lending to a single customer to no more than 10% of capital. C. the provision of deposit insurance. D. the periodic monitoring of banks. E. encouraging banks to produce timely accounting statements and reports.

Q: Price and quantity restrictions in regulation are usually aimed at determining whether an FI is meeting certain A. consumer protection guidelines. B. credit allocation guidelines. C. investor protection guidelines. D. safety and soundness guidelines. E. entry regulation guidelines.