Chapter 3 Fin 4324

89. A bank holding company that wishes to acquire _________ or more of equity shares of an additional bank must seek approval from the Federal Reserve Board.

5 percent

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

Agency theory

16. ___________________ is the committee selected by stockholders to set policies and monitor the performance of a bank.

Board of directors

47. Which of the following is charged with setting policies and overseeing the performance of a bank?

Board of directors

14. ___________________________ is the idea that as the output grows cost of production per unit of goods and services will grow at a lower rate.

Economies of scale

15. ______________________ is the idea that cost of producing multiple services using the same organization and resources will grow at a lower rate as the product mix expands.

Economies of scope

70. Which of the following is a reason for the rapid growth in branch banks?

Exodus of population from cities to suburban areas

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

FALSE

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

FALSE

20. 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

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

FALSE

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

FALSE

24. An average U.S. bank is larger in size (in terms of number of branch offices) than an average Canadian bank.

FALSE

25. 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

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

FALSE

32. 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

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

FALSE

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

FALSE

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

FALSE

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

FALSE

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

FALSE

72. When a bank holding company acquires a nonbank business it must be approved by the:

Federal Reserve.

8. A(n) _____________________ is a special type of holding company that may offer the broadest range of financial services including dealing in and underwriting securities and selling and underwriting insurance.

Financial Holding Company (FHC)

76. Of the following countries in Europe which one has the largest number of banks?

Germany

59. What is a bank holding company?

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

51. Which of the following is one of the few states that has opted out of interstate banking?

Montana

69. ____________ and ___________ banks tend to be larger and hold more of the public's deposits in the United States.

National member

1. 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

60. Which of the following is a type of service that a bank holding company is not allowed to own?

Retail electronics equipment sales company

91. ____________ offer savings deposit plans and housing related credit predominantly to individuals and families.

Savings associations

56. Which of the following is a type of nonbank businesses a bank holding company can own?

Security Brokerage Firm

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

TRUE

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

TRUE

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

TRUE

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

TRUE

29. 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

30. There is evidence that branch banks charge higher service fees for some banking services than unit banks which reflects greater knowledge on the part of larger banks concerning true cost of service.

TRUE

31. A unit branch faces the risk of variability in earnings if the surrounding economy weakens and people and businesses move away to other market areas.

TRUE

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

TRUE

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

TRUE

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

TRUE

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

TRUE

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

TRUE

41. Bank organizational structure has become more complex in recent years.

TRUE

44. Community banks are usually smaller banks that are devoted principally to the markets for smaller local deposits and loans.

TRUE

45. X-efficiency is a concept which measures the divergence between the actual operating costs and the lowest possible operating costs of a financial services firm if it is operating under maximum efficiency.

TRUE

82. A financial holding company (FHC) defined as a special type of holding company that may offer the broadest range of financial services such as securities and insurance activities was allowed under which act?

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

71. Under the Bank Holding Company Act control of a bank is assumed to exist only if:

The bank holding company acquires 25% or more of at least one bank's outstanding stock

90. ________________ manage and care for the property of businesses individuals and non-profit organizations.

Trust companies

65. A 'typical' community bank is committed to:

attracting deposits from large companies.

85. A money center bank is typically owned by:

bank holding companies.

4. A(n) ________________________ is a corporation chartered for the specific purpose of holding the stock of one or more banks often along with other businesses.

bank holding company

84. Senior management of a community bank reports periodically to the:

board of directors.

2. A(n) _____________________ is one which offers its full range of banking services from several locations.

branch bank

49. Before offering any financial service to the public a bank in the United States must have a:

charter of incorporation.

86. In recent years organizational hierarchy in banks is increasingly becoming more:

complex.

87. One reason for the fairly large number of unit banks in the United States is:

continuous formation of new banks.

78. When different financial service providers offer a similar range of services including banking insurance and securities services it is known as:

convergence.

13. Many experts believe that lower agency costs and better company performance depend upon the effectiveness of ____________ the relationship that exists among managers the board of directors stockholders and other stakeholders.

corporate governance

81. Nonbank financial firms that supply insurance coverage to customers borrowing money to guarantee repayment of a loan are referred to as:

credit insurance underwriters.

61. Over the last half-a-decade the number of banks in the U.S. has __________ and the number of branches has ________.

declined; increased

74. According to Levonian and Rose in order to achieve some reduction in earnings risk interstate banks must:

expand into a number of different regions.

5. 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

46. 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.

function

79. Gradual evolution of markets and institutions such that geographic boundaries do not restrict financial transactions is known as:

globalization.

50. A typical branch banking organization:

has partial decentralization of authority.

73. Many financial experts believe that the customers most likely to be damaged by decreased competition include:

households and business in smaller cities and towns.

52. The concentration of U.S. bank deposits in the hands of the largest banks has _________ recently.

increased

11. A bank that is not owned by a holding company is called a(n) ______________ bank.

independent

88. Outside the United States the holding company form:

is usually legal but not often used.

63. Relative to manufacturing firms banks tend to have ___________ number of board members.

larger

80. Banks with _______ in assets are generally called community banks.

less than $1 billion

68. Member banks are:

members of the Federal Reserve System in the U.S.

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

merchant bank

54. A company which owns stocks of three different banks is categorized as a(n):

multi-bank holding company.

92. In theory if an interstate organization can acquire banks in states where bank earnings have a ______________ with bank earnings in those states where the interstate company is already represented a "portfolio effect" may occur.

negative correlation

75. Consolidation particularly among saving associations finance companies credit unions security firms and insurance companies is:

occurring at a rapid pace.

83. A bank devoted principally to the markets for smaller locally based deposits and loans is often referred to as a(n):

retail bank.

9. 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

67. Majority of banks today are:

state chartered.

62. Websites known as electronic branches offer all of the following except:

traveler's checks.

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

unit bank

57. A bank which offers its full range of services from only one office is known as a:

unit bank.

64. About a quarter of all commercial banks in the U.S. are:

unit banks

10. The Gramm-Leach-Bliley Act moved the U.S. banking industry closer to the concept of ___________ banking in which banks merge with security and insurance firms and various other financial products.

universal

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

virtual