ch.2

Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk.

FALSE

Passed in 1977, the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live.

FALSE

The 1994 Federal Interstate Banking bill does not limit the percentage of statewide or nationwide deposits that an interstate banking firm is allowed to control.

FALSE

The National Bank Act (1863-64) created the Federal Reserve which acts as the lender of last resort.

FALSE

The Sarbanes-Oxley Act allows banks, insurance companies, and securities firms to form Financial Holding Companies (FHCs).

FALSE

The Truth in Lending (or Consumer Credit Protection) Act was passed by the U.S. Congress to outlaw discrimination in providing bank services to the public.

FALSE

The federal law that states individuals and families cannot be denied a loan merely because of their age, sex, race, national origin, or religious affiliation is known as the Competitive Equality in Banking Act.

FALSE

The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central government and local governments regulate banks.

FALSE

The tool used by the Federal Reserve System to influence the economy and behavior of banks is known as moral hazard.

FALSE

When the Federal Reserve buys T-bills through its open market operations, it causes the growth of bank deposits and loans to decrease.

FALSE

When the Federal Reserve increases the discount rate, it generally causes other interest rates to decrease.

FALSE

National banks cannot merge without the prior approval of the Comptroller of the Currency.

TRUE

Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation.

FALSE

The Bank Merger Act and its amendments require that Bank Holding Companies be under the jurisdiction of the Federal Reserve.

FALSE

The Federal Reserve changes reserve requirements frequently because the effect of these changes is small.

FALSE

In the United States, fixed fees charged for deposit insurance, regardless of how risky a bank is, led to a problem known as moral hazard.

TRUE

One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system.

TRUE

The Financial Institutions Reform, Recovery, and Enforcement Act (1989) allowed bank holding companies to acquire nonbank depository institutions and, if desired, convert them into branch offices.

TRUE

The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s.

TRUE

The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks which make them accept greater risk.

TRUE

Under the terms of the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act, adequately capitalized and managed bank holding companies can acquire a bank anywhere inside the United States.

TRUE