Commercial Banking Ch 3

A(n) _____________________ is a bank which offers its full range of services from several locations.

Branch bank

In banking, organizational form follows __________ because banks usually are organized in such a way as to carry out the tasks and supply the services demanded of them. The term that correctly fills in the blank in the sentence above is: A) Bank size B) Management's decision C) Function D) Regulation E) Location

C) Function

Of the following countries in Europe, which has the largest number of banks? A) Belgium B) France C) Germany D) Great Britain E) None of the above

C) Germany

What is a bank holding company? A) It is a bank that offers all of its services out of one office B) It is a bank that offers all its services out of several offices C) It is a corporation formed to hold the stock of one or more banks D) It is a merchant bank E) None of the above

C) It is a corporation formed to hold the stock of one or more banks

Which of the following is a type of service a bank holding company is not allowed to own? A) Merchant banking company B) Savings and loan association C) Retail electronics equipment sales company D) Security brokerage firm E) Insurance agency

C) Retail electronics equipment sales company

The majority of banks today are: A) Federally chartered B) Uninsured C) State Chartered D) National Banks E) All of the above

C) State Chartered

When a bank holding company acquires a nonbank business it must be approved by: A) The FDIC B) The Comptroller of the Currency C) The Federal Reserve D) The President of the U.S. E) All of the above

C) The Federal Reserve

Under the Bank Holding Company Act control of a bank is assumed to exist only if: A) The bank holding company acquires 100% of the bank's stock B) The bank holding company acquires 50% or more of the bank's stock C) The bank holding company acquires 25% or more the bank's stock D) The bank holding company acquires three banks E) None of the above

C) The bank holding company acquires 25% or more the bank's stock

In the United States there are close to __________ commercial banks in operation. Which number shown below is closest to the actual total number of U.S. banks operating in the U.S.? A) 20,500 B) 13,500 C) 11,500 D) 9,000 E) 7,500

E) 7,500

Which of the following is considered an advantage of branch banking? A) Increased availability and convenience of services B) Decreased chance of failure C) Reduced transaction costs D) B and C above E) All of the above

E) All of the above

Bank holding companies that want to achieve the goal of risk reduction in earnings risk through interstate banking can achieve the same level of risk reduction by entering any of the fifty states.

False

Bank size is not considered a significant factor in determining how banks are organized.

False

Banks which operate entirely on the web are known as invisible banks.

False

Branch banks tend to offer a wider menu of services than unit banks.

False

Despite the rapid growth of automation in U.S. banking, there are more full-service branch banking offices than automated teller machines across the whole U.S.

False

Nearly three quarters of all U.S. banks exceed $100 million in asset size apiece.

False

Over half of all U.S. states today limit branching activity.

False

Recent research suggests that branch banks tend to be more profitable than either unit or holding company banks, while interstate banks tend to be the most profitable of all.

False

Research evidence suggests that banks taken over by interstate banking organizations have generally increased their market shares over their competitors within the same state and generally are more profitable than their competitors.

False

State-chartered banks in the United States represent about a quarter of all U.S.-chartered banks, while national banks account for approximately three quarters of all U.S. chartered banks.

False

The average U.S. bank is larger in size (in terms of number of branch offices) than the average Canadian bank.

False

The majority of all U.S. banks are members of the Federal Reserve System.

False

There are only a very small number of unit banks in the U.S. today.

False

Traditional brick-and-mortar bank branch offices are on the decline in the U.S. today.

False

A bank that is not associated with a bank holding company is called a(n) bank.

Independent

A banking corporation chartered by either federal or state governments that operates only one full-service office is called a unit bank.

True

Bank holding companies are allowed to own nonbank businesses as long as those businesses offer services closely related to banking.

True

Bank holding companies hold more than 90 percent of the industry's assets in the United States.

True

Bank organizational structure has become more complex in recent years.

True

Banks acquired by holding companies are referred to as affiliated banks.

True

Banks tend to have a higher proportion of outside directors than a typical manufacturing firm.

True

Community banks are usually smaller banks that are devoted principally to the markets for smaller, locally based deposits and loans.

True

In the United States there are more one-bank holding companies than multi-bank holding companies.

True

Less than 10 percent of the largest banks in the U.S. control almost 90 percent of the industry assets.

True

Nearly all U.S. banks with federal or state charters have their deposits insured by the Federal Deposit Insurance Corporation.

True

Recent research suggests that the relationship between bank size and the cost of production per unit is roughly U shaped.

True

The concentration of bank deposits at the local level (that is in urban communities and rural counties) has displayed only moderate changes in recent years.

True

The question of whether financial firms operate as efficiently as possible requires researchers to look into the issue of x-efficiency. The concept requires an assessment of the financial firm's operating costs in relation to its cost-efficient frontier.

True

There is evidence that branch banks charge higher fees for some banking services than do unit banks.

True

is a view of how modern corporations operate which analyzes the relationship between a firm's owners and its managers.

Agency theory

The 'typical' community bank has: A) $300 million in assets and is located in a smaller city in the Midwest. B) $25 billion in assets and is located in a large city in the East C) $100 million in assets and is located in a large city the South D) $10 billion in assets and is located in a small city in the West E) None of the above

A) $300 million in assets and is located in a smaller city in the Midwest.

In the last decade, the number of banks has __________ and the number of branches has _________. A) Declined; Increased B) Grown; Increased C) Grown; Decreased D) Declined; Decreased E) Stabilized; Stabilized

A) Declined; Increased

Which of the following is a reason for the rapid growth in branch banks? A) Exodus of population from cities to suburban areas B) Bank convergence C) Business failures D) Decreased costs of brick and mortar E) All of the above

A) Exodus of population from cities to suburban areas

The major competitors of banks have: A) Fewer but much larger service providers B) Fewer but smaller service providers C) More but smaller service providers D) More but larger service providers E) None of the above

A) Fewer but much larger service providers

and banks tend to be larger and hold more of the public's deposits. A) National and Member B) State and Nonmember C) National and Uninsured D) State and Insured E) None of the above

A) National and Member

A bank which offers its full range of services from only one office is known as a: A) Unit Bank B) Branch Bank C) Correspondent Bank D) Bank Holding Company E) None of the above

A) Unit Bank

The 'typical' money center bank has: A) $250 million in assets and is located in a smaller city in the Midwest B) $25 billion in assets and is located in a large city in the East C) $100 million in assets and is located in a large city in the South D) $10 billion in assets and is located in a small city in the West E) None of the above

B) $25 billion in assets and is located in a large city in the East

The percentage of unit banks in the U.S. today is approximately: A) 10% B) 30% C) 50% D) 75% E) 100%

B) 30%

According to Levonian and Rose in order to achieve some reduction in earnings risk, interstate banks must expand into at least: A) 2 states B) 4 states C) 6 states D) 10 states E) 25 states

B) 4 states

Which one of the following is charged with setting policy and overseeing a bank's performance? A) Stockholders B) Board of directors C) Regulators D) Depositors E) None of the above.

B) Board of directors

Before any financial services can be offered to anyone a bank in the United States must have a: A) Certificate of deposit insurance B) Charter of incorporation C) List of established customers D) New building constructed to be the bank's permanent home E) None of the above.

B) Charter of incorporation

When financial service providers offer a range of services including banking, insurance and securities services it is known as: A) Consolidation B) Convergence C) Economies of scale D) E-Efficiencies E) None of the above

B) Convergence

Many financial experts believe that the customers most likely to be damaged by decreased competition include: A) Large corporations in large cities B) Households and business in smaller cities and towns C) Households that earn more than a billion dollars a year D) Students away at college E) None of the above

B) Households and business in smaller cities and towns

The concentration of U.S. bank deposits in the hands of the largest banks has _________ during the most recent period, A) Declined B) Increased C) Remained essentially unchanged D) Exhibited large fluctuations in both directions E) None of above.

B) Increased

Relative to manufacturing firms, banks tend to have a (the) ___________ number of board members. A) Same B) Larger C) Smaller D) Unknown E) None of the above

B) Larger

Banks with less than _______ in assets are generally called community banks. A) More than $1 billion B) Less than $1 billion C) More than $5 million D) Less than $1 trillion E) More than $1 trillion

B) Less than $1 billion

The types of nonbank businesses a bank holding company can own include which of the following? A) Retail Computer Store B) Security Brokerage Firm C) Retail Grocery Store D) Wholesale Electronic Distribution Company E) All of the above

B) Security Brokerage Firm

A(n)________________________ is a corporation chartered for the express purpose of holding the stock of one or more banks.

Bank holding company

Many experts believe that , the relationships that exist between managers, the board of directors and stockholders, is more complicated in financial institutions.

Because of government regulations.

Bank holding company organizations have several advantages over other types of banking organizations. Among the advantages mentioned in this chapter is: A) Greater ease of access to capital markets B) Tax advantage C) Product-line diversification D) All of the above. E) None of the above.

D) All of the above

The gradual evolution of markets and institutions such that geographic boundaries do not restrict financial transactions is known as: A) Deregulation B) Integration C) Re-regulation D) Globalization E) Moral suasion

D) Globalization

Which country's banks were owned by the state until the 1990's? A) Belgium B) France C) Germany D) Italy E) None of the above

D) Italy

'Member' banks are: A) Members of the FDIC B) National Banks C) Unit Banks D) Members of the Federal Reserve E) All of the above

D) Members of the Federal Reserve

One of the few states that has opted out of interstate banking is: A) New York B) Ohio C) Texas D) Montana E) None of the above

D) Montana

A company which owns the stock of three different banks is known as a(n): A) Unit Bank B) Interstate Bank C) One Bank Holding Company D) Multi Bank Holding Company E) None of the above

D) Multi Bank Holding Company

Agency theory suggests that bank management will always pursue the goal of maximizing the return of the bank's shareholders.

False

Why did so many states and the federal government finally enact interstate banking laws? A) The need for new capital in order to revive struggling economies B) The expansion of services by nonbank financial institutions C) Competition from neighboring states that already liberalized their laws D) Advances in technology which allowed banks to service customers in broader geographic areas E) All of the above are reasons for the passage of interstate banking laws

E) All of the above are reasons for the passage of interstate banking laws

The largest banks possess some potential advantages over small and medium-size banks, according to the textbook. What specific advantage of the largest banks over small and medium-sized banks is not mentioned in the text? A) Greater diversification geographically and by product line B) Availability of financial capital at lower cost C) Greater professional expertise to allocate capital to the most promising products and services D) Better positioned to take advantage of the opportunities afforded by interstate banking. E) All of the above were mentioned in the text as advantages typically possessed by the largest banks.

E) All of the above were mentioned in the text as advantages typically possessed by the largest banks.

Nonbank financial firms that supply insurance coverage to customers borrowing money to guarantee repayment of a loan are referred to as: A) Merchant Bankers B) Factoring Companies C) Savings Associations D) Investment Bankers E) Credit Insurance Underwriters

E) Credit Insurance Underwriters

A financial holding companies (FHC), defined as a special type of holding company that may offer the broadest range of financial services such as securities and insurance activities, were allowed under which act? A) Riegle-Neal Interstate Banking and Branching Efficiency Act B) The Competitive Equality in Banking Act C) The Basel Agreement D) The FDIC Improvement Act E) The Gramm-Leach-Bliley Financial Services Modernization Act

E) The Gramm-Leach-Bliley Financial Services Modernization Act

Websites known as electronic branches offer all of the following except: A) Internet banking services B) ATMs C) Point of sales terminals D) Computer and phone services connecting customers E) Traveler's checks

E) Traveler's checks

is the idea that there will be a lower cost of production per unit as the firm gets larger.

Economies of scale

is the idea that there will be lower cost of producing multiple services using the same organization and resources.

Economies of scope

Managers who value fringe benefits, plush offices and ample travel budgets over the pursuit of maximum returns for stockholders are exhibiting signs of __________________________.

Expense Preference Behavior

One new 21st century bank organizational structures is _____________________ . This is a special type of holding company that may offer the broadest range of financial services.

Financial holding company

A(n) __________________________ can invest in corporate stock as sell as loan money to help finance the start of new ventures or support the expansion of existing businesses.

Merchant bank

Over the years, managers of banks and other financial institutions have evolved different organizational forms to address changes in the industry. Indeed, these firms are organized to carry out various roles in the most efficient way. This is referred to as _________________________.

Organizational form follows function

A(n) ___________________ is a machine located at the merchant's place of business which allows depositors to use their debit card to pay for purchases directly.

POS

The key problem in a large money center bank is . Managers may be knowledgeable about banking practices but may be less informed about products and services of subsidiary companies.

Span of control

A(n) _____________________ is a bank which offers its full range of services from only one location.

Unit bank

The Gramm-Leach-Bliley Act moved the U.S. banking industry closer to banking in which banks may provide securities, insurance, and other financial products.

Universal

A bank which operates exclusively over the internet is known as a ___________ bank.

Virtual