ECON 330 CHAPTER 11
Commercial banks that provide a full range of banking, securities, and insurance services, all within a single legal entity, are part of: a) decentralised banking b) an international banking system c) a universal banking system d) barrier-free banking
C
Which regulatory agency has the primary responsibility for supervising Federal Reserve Member State Banks? a) comptroller of the currency b) state banking authorities c) Federal Reserve System
C
Which regulatory agency has the primary responsibility for supervising bank holding companies? a) comptroller of the currency b) officer of thrift supervision c) Federal Reserve System
C
Why does the United States operate under a dual banking system? (Check all that apply.) a) Dual banking systems encourage competition between state-chartered banks and federally chartered banks. b) Financial innovation is more likely to occur in a dual banking system. c) Federally chartered banks help to stabilize the banking system and are less prone to failure. d) There is skepticism of centralized power in the U.S. banking system. e) Dual banking systems are always more efficient and economically sound than other banking systems.
C,D
Currency in circulation that cannot be redeemed for gold is called: a) junk bonds b) state money c) gold bills d) fiat money
D
The following are the main sources for financial innovation except a) changes in supply conditions b) avoidance of costly regulation c) changes in demand conditions d) promotion of bank regulations
D
The government agency that oversees the banking system and is responsible for the supply of money and credit in the economy is the a) national bank b) community bank c) virtual bank d) central bank
D
The legislation that repealed the Glass-Steagall Act is the a) Regulation Q. b) Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. c) Douglas Amendment of 1956. d) Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
D
Which of the following financial innovations helped banks reduce their interest-rate risk that came from the increased volatility of interest rates since the 1970s? a) junk bonds and commercial paper b) ATMs c) bank holding companies d) adjustable-rate mortgages and financial derivatives
D
Which of the following is likely a result of increased interest-rate volatility? a) An increase in costs for financial products and services b) A decrease in demand for financial services and products c) A decrease in costs for financial products and services d) An increase in demand for financial services and products
D
Why have banks been losing income advantages on their assets in recent years? a) Securitization has enabled other financial institutions to originate loans, taking away some of the banks' loan business. b) The collapse of the subprime mortgage market has put banks at a comparative disadvantage because regulators are requiring them to refinance subprime mortgages with terms that are unfavorable to the banks. c) The growth of the commercial paper market and the development of the junk bond market have given corporations alternatives to borrowing funds from banks, thus eroding the competitive advantage of banks on the lending side. d) Both A and C are correct. e) All of the above are correct.
D
As a result of strict banking regulations, the United States has: a) many more smaller banks when compared to other industrialised countries b) banks that are quite large relative to those in other industrialised countries c) a few dominant banks that hold most of the assets in the banking industry d) too few banks when compared to other industrialised countries
A
Banks could gain the benefits of ____________ because they would now be able to make loans in different states rather than focus in just one. a) diversification b) bank consolidation c) securitization
A
Compared to banks, credit unions a) have customers that share some common bond such as employment. b) tend to be larger. c) have no deposit insurance. d) usually lend to commercial enterprises.
A
Deposits in European banks denominated in dollars for the purpose of international transactions are known as: a) Eurodollars b) international monetary units c) European currency units d) European monetary units
A
If the bank at which you keep your checking account is owned by foreigners, should you worry that your deposits are less safe than if the bank were owned by Americans? a) No, because the foreign bank is subject to the same regulations as the American-owned bank. b) Yes. Although the foreign bank is subject to the same regulations as the American-owned bank, it is much easier for the foreign bank to circumvent these regulations, thus putting your deposits at greater risk. c) No. Although the foreign bank is not subject to the same regulations as the American-owned bank, it is subject to international banking regulations, which are essentially equivalent to U.S. banking regulations. d) Yes, because the foreign bank is not subject to the same regulations as the American-owned bank.
A
Large banks are ___________ than community banks. a) more efficient b) less efficient c) as efficient
A
Large banks have a ________ likelihood of failure than community banks. a) less b) greater c) the same
A
The McFadden Act of 1927: a) prohibited banks from branching across state lines. b) separated commercial banks and investment banks. c) required that banks maintain bank capital equal to at least 6 percent of their assets. d) required that all banks seek deposit insurance.
A
The _________________, established in 1791, is the first central bank in the United States. a) Bank of the United States b) Federal Reserve System c) Credit Suisse First Boston
A
The ability to use one common resource to provide different products and services is: a) economies of scope b) diversification c) economies of scale d) vertical integration
A
What has been the likely effect of the Gramm-Leach-Bliley Act on financial consolidation? a) This legislation further stimulated financial consolidation of the banking industry. Thus, more financial mergers are likely to occur, which will increase both the size and complexity of financial institutions in the future. b) This legislation led to further consolidation of the banking industry; however, it is likely that the costs of consolidation and nationwide banking will outweigh the benefits. c) This legislation placed limits on financial consolidation in the banking industry. Thus, fewer financial mergers are likely to occur, and there will be a larger number of smaller banks in the future. d) The Gramm-Leach-Bliley Act was later appealed and thus has no impact on financial consolidation.
A
Which of the following statements about savings and loans is not true? a) There are more savings and loans than banks b) Savings and loans are supervised by the Office of Thrift Supervision c) Savings and loans have historically been subject to less restrictive branching laws than banks d) Savings and loans have deposit insurance
A
Which regulatory agency has the primary responsibility for supervising national banks? a) comptroller of the currency b) FDIC c) Federal Reserve System
A
____________ are financial institutions within the United States that can accept time deposits from foreigners but are not subject to either reserve requirements or restrictions on interest payments. a) International Banking Facilities b) Savings and loans c) Branches d) Superregional Banks
A
"If inflation had not risen in the 1960s and 1970s, the banking industry might be healthier today." Is this statement true, false, or uncertain? Explain your answer. a) True. Higher inflation helped raise interest rates, which caused the disintermediation process to occur and helped create money market mutual funds. b) False. Higher inflation helped raise interest rates, which helped the banking industry. Problems in the U.S. banking system are primarily due to the abolishment of Regulation Q. c) False. Higher inflation helped raise interest rates, which helped the banking industry. Problems in the U.S. banking system are primarily due to financial innovation. d) True. Higher inflation helped raise interest rates, which caused the disintermediation process to occur and prompted the reinstatement of Regulation Q and NOW accounts.
A
'The commercial banking industry in Canada is less competitive than the commercial banking industry in the United States because in Canada only a few large banks dominate the industry, while in the United States there are around 6,500 commercial banks.' Is this statement true or false? Explain your answer. a) False. The reason for the large number of US banks is anticompetitive regulations such as branching restrictions b) True. The banking industry is less competitive in Canada than in the United States because Canada has a national banking system, i.e., owned and operated by the government c) False. It is not true that the industry is dominated by a few large firms; thus, based on the Herfindahl-Hirschman Index, the banking industry in Canada is just as competitive as in the United States d) True. The reason for the large number of US banks is regulations that promote competition such as branching restrictions
A
How did competitive forces lead to the repeal of the Glass-Steagall Act's separation of the banking and securities industries? (Check all that apply.) a) Financial innovation motivated banks and other financial institutions to bypass the intent of the Glass-Steagall Act. b) The Fed allowed bank holding companies to enter the underwriting business. c) Banks were allowed to hold substantial equity stakes in commercial firms in order to keep them competitive. d) The Act's restrictions put American banks at a competitive disadvantage relative to foreign banks.
A,B,D
A few industries in the United States have ___________ firms than the commercial banking industry. a) fewer b) more c) about the same
B
According to the text, there are about a) 5,000 commercial banks in the United States. b) 5,700 commercial banks in the United States. c) 10,000 commercial banks in the United States. d) 15,000 commercial banks in the United States.
B
Bank failures have contributed to the decline in the number of banks. Another major reason is the a) creation of financial derivatives. b) prevalence of bank consolidation. c) history of branching restrictions. d) existence of securitization.
B
Bank holding companies that rival money center banks in size but are not located in money center cities are known as: a) international banks. b) superregional banks. c) district branch banks. d) multinational banks.
B
Small banks are also known as a) supraregional banks. b) community banks. c) savings and loan institutions. d) state banks.
B
The current central bank of the United States is a) Morgan Stanley b) the Federal Reserve c) the Third Bank of the United States d) the First National Bank of Boston
B
The following examples contributed to the erosion of the Glass-Steagall act except the statement that indicates that a) the Federal Reserve introduced a loophole that affiliates of approved commercial banks used. b) an executive order prohibited banks from purchasing securities. c) brokerage firms used money market mutual funds and cash management accounts. d) regulatory agencies allowed banks to engage in some real estate and insurance activities.
B
Thrift institutions include: a) insurance companies b) mutual savings banks c) commercial banks d) brokerage firms
B
Which of the following is the only depository institution to maintain a tax-exempt status? a) Commercial banks b) Credit unions c) Savings and loan associations d) Mutual savings banks
B
Which regulatory agency has the primary responsibility for supervising Federally chartered savings and loan associations a) comptroller of the currency b) Officer of Thrift Supervisions c) Federal Reserve System
B
Which regulatory agency has the primary responsibility for supervising federally chartered credit unions? a) comptroller of the currency b) National Credit Union Administration c) Federal Reserve System
B
Which regulatory agency has the primary responsibility for supervising non-federal reserve member state banks? a) comptroller of the currency b) state banking authorities c) Federal Reserve System
B
Why is there a higher percentage of banks with less than $25 million of assets among commercial banks than among savings and loans and mutual savings banks? a) Because commercial banks specialize in providing credit card and other transaction-based services, they tend to be smaller than S&Ls and mutual savings banks, which specialize in making mortgage loans and other large loans. b) Because restrictions on branching are stricter for commercial banks than for savings and loans, small commercial banks have greater protection from competition and are more likely to survive than small savings and loans. This is the correct answer. c) Because commercial banks specialize in providing demand deposit and other transaction-based services, they tend to be smaller than S&Ls and mutual savings banks, which specialize in making mortgage loans and other large loans. Your answer is not correct. d) Because restrictions on branching are less stringent for commercial banks than for savings and loans, small commercial banks have greater protection from competition and are more likely to survive than small savings and loans.
B
________________ is a special subsidiary of US banks engaged primarily in international banking a) An International Banking Facility b) An Edge Act Corporation c) A Credit Union d) A Mutual Savings Bank
B
Which of the following explain why only two U.S. banks are present among the ten largest banks in the world? (Select all that apply.) a) An inefficient legal system. b) A large number of banks in the United States. c) Stricter regulations in the United States. d) Slow pace of consolidation in the banking sector.
B, C, D
