FRL 460 Midterm 1

A memorandum of understanding is a legal document that orders a firm to stop an unfair practice.

False

Bank regulations can guarantee that bankers will make sound management decisions.

False

Banks that use preferred stock understate their ROE relative to banks that do not use preferred stock.

False

Banks with the highest efficiency ratios are presumed to be the most efficient.

False

Community banks relied more on investment banking, relative to larger banks, to increase non-interest income.

False

Credit union membership is based upon a strict common bond that defines the members.

False

During the past 20 years, the number of distinct U.S. banking organizations has increased.

False

Financial holding company and bank holding company are different names for the same type of entity.

False

In 2008, the U.S. Treasury committed over $50 trillion dollars in financial support for financial institutions.

False

Increased competition, following deregulation, has led to an increase in bank's net interest margin.

False

Larger banks hold a larger percentage of earning assets than smaller banks.

False

Most banks have the ability to easily raise new capital by issuing new equity.

False

Offering remote deposit capture is high cost but low risk for a bank.

False

Regarding interest expense, volume effects suggest that the mix of liabilities among banks may differ.

False

Relative to larger banks, smaller banks rely more on non-interest income as a source of revenue.

False

Retail banks deal primarily with commercial customers.

False

Securitization refers to the process of splitting a single loan into several smaller loans.

False

Smaller banks tended to have more subprime mortgage defaults than larger banks.

False

State-chartered banks must be members of the Federal Reserve System.

False

Subordinated bank debt is federally insured.

False

The FDIC insures credit union accounts up to $250,000.

False

To help keep people in their homes, the SEC promoted loan modifications for troubled home-loan borrowers.

False

Transaction banking emphasizes the personal relationship between the banker and customer.

False

Controlling interest in a bank is defined as ownership or indirect control of ____ of the voting shares in the bank. a. 15% b. 20% c. 25% d. 30% e. 51%

25%

Customer profitability data can be beneficial in helping bank management: a. develop new products. b. identify profitable target niches. c. determine changes in product pricing. d. All of the above e. a. and b. only

d. All of the above

The Helping Families Save Their Homes Act of 2009 included provisions: a. intended to prevent mortgage foreclosures. b. to enhance the availability of mortgage credit. c. to protect renters living in foreclosed homes. d. All of the above are correct. e. Only a. and b. are correct.

d. All of the above are correct.

Which of the following is considered a measure of bank productivity? a. Return on assets b. Return on equity c. Assets per depositor d. Assets per employee e. All of the above are measures of bank productivity

d. Assets per employee

Which of the following is not a cost management strategy? a. Investing in resources to improve long-term profitability b. Changing pricing such that total revenues increase c. Identify operating efficiencies d. Burden identification e. Expense reduction

d. Burden identification

From the following list, which two are the biggest contributors to non-interest income? Fiduciary Activities Deposit Service Charges Trading Revenue Investment Banking Insurance Commission Fees and Income Other Non-Interest Income a. Fiduciary Activities & Deposit Service Charges b. Trading Revenue & Investment Banking c. Insurance Commission Fees and Income & Other Non-Interest Income d. Depository Service Charges and Other Non-Interest Income e. Fiduciary Activities and Investment Banking

d. Depository Service Charges and Other Non-Interest Income

Which of the following is not a fundamental function of the Federal Reserve? a. Conduct the nation's monetary policy. b. Provide an effective payments system. c. Regulate banking operations. d. Ensure bank profitability. e. All of the above are fundamental functions of the Federal Reserve.

d. Ensure bank profitability.

National and state charters are available for all of the following except: a. credit unions. b. commercial banks. c. savings associations. d. Federal Reserve banks. e. National and state charters are available for all of the above.

d. Federal Reserve banks.

Which of the following is not considered a volatile liability? a. Jumbo CDs b. Deposits in foreign offices c. Repurchase agreements d. Federal funds sold e. All of the above are considered volatile liabilities

d. Federal funds sold

The _______________ repealed the restriction on banks affiliating with securities firms under the Glass-Steagall Act. a. Sarbanes-Oxley Act b. Bank Holding Company Act c. Competitive Equality Banking Act d. Gramm-Leach-Bliley Act e. Financial Institutions Reform, Recovery and Enforcement Act

d. Gramm-Leach-Bliley Act

Which of the following is not a techniques that banks use to "manage earnings"? a. Window dressing b. Nonrecurring sales of assets c. Adjusting the allowance for loan losses d. Increasing loans classified as non-performing e. All of the above are techniques that banks use to "manage earnings"

d. Increasing loans classified as non-performing

Which of the following is not part of the CAMELS ratings? a. Capital adequacy. b. Asset quality. c. Earnings quality. d. Liabilities quality. e. Sensitivity to market risk.

d. Liabilities quality.

______________ transactions are the highest-cost type of transaction for a bank. a. Web-based b. ATM c. Work station d. Live teller e. After-hours

d. Live teller

Which of the following would a bank generally classify as a long-term investment? a. Treasury bill b. Vault cash c. Cash items in process of collection d. Municipal bond e. Repurchase agreements

d. Municipal bond

Which of the following is are only available to non-commercial customers? a. Money Market Demand Accounts b. Demand deposit accounts c. Mortgage loans d. Negotiable Orders of Withdrawal (NOW) accounts e. Auto leases

d. Negotiable Orders of Withdrawal (NOW) accounts

Which of the following is the most flexible of the Fed's tools for implementing monetary policy? a. Changes in the fed funds rate b. Changes in the required reserve ratio c. Changes in the discount rate d. Open market operations e. Private placements

d. Open market operations

The _________ established to Public Company Oversight Board to regulate public accounting firms that audit publicly-traded companies. a. Riegle-Neal Interstate Banking and Branching Efficiency Act b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Sarbanes-Oxley Act e. Depository Institutions Deregulation and Monetary Control Act

d. Sarbanes-Oxley Act

Which of the following adjustments are made to gross loans and leases to obtain net loans and leases? a. The loan and lease loss allowance is subtracted from gross loans b. Unearned income is subtracted from gross interest received c. Investment income is added to gross interest received d. a. and b. e. a. and c.

d. a. and b.

Interest expense varies between banks because of: a. rate effects. b. composition effects. c. volume effects. d. all of the above. e. a. and c.

d. all of the above.

Everything else the same, a bank's "burden" would most likely increase given: a. a decrease in overhead expenses. b. an increase in interest rates. c. a decrease in interest rates. d. an increase in executive salaries. e. an increase in service charges collected by the bank.

d. an increase in executive salaries.

Classified loans: a. still accrue interest. b. have not had a principle or interest payment made in 90 days. c. exactly offset gross charge-offs. d. are loans in which regulators have forced management to set aside reserves. e. all of the above

d. are loans in which regulators have forced management to set aside reserves.

Banks experience diseconomies of scale when: a. marginal costs increase as total costs decrease. b. total costs decrease as output decreases. c. total costs increase as output increases. d. average unit costs increase as output increases. e. average unit costs decrease as output increases.

d. average unit costs increase as output increases.

Jumbo CDs that a bank obtains from a third-party broker are called: a. money market demand accounts. b. time deposit accounts. c. mortgage loans. d. brokered deposits. e. core deposits.

d. brokered deposits.

The parent bank holding company assists bank subsidiaries with all of the following except: a. asset and liability management. b. strategic planning. c. loan review. d. deposit insurance. e. business development.

d. deposit insurance.

FASB 115 requires historical costs to be used for: a. trading account securities. b. available-for-sale securities. c. retained earnings. d. held-to-maturity securities. e. net income.

d. held-to-maturity securities.

The primary appeal of online banking is: a. prevention of identity theft. b. high-volume traffic. c. lack of face-to-face interaction. d. its convenience. e. the ability to make small dollar purchases.

d. its convenience.

A __________ controls at least two commercial banks. a. one-bank holding company b. state holding company c. national holding company d. multibank holding company e. financial holding company

d. multibank holding company

Typically, "call loans" are: a. residential mortgages. b. farm loans. c. demand deposits. d. payable on demand. e. automobile loans.

d. payable on demand.

Non-interest income includes all of the following except: a. checking account fees. b. insufficient funds service charges. c. trust income. d. personnel expenses. e. all of the above are considered non-interest income.

d. personnel expenses.

Savings and loans have historically specialized in: a. commercial loans. b. auto loans. c. mutual loan. d. real estate loans. e. demand deposit accounts.

d. real estate loans.

The goal of a bank manager should be: a. to maximize earnings. b. to minimize taxes. c. to minimize risk. d. to maximize shareholder wealth. e. to maximize net interest income.

d. to maximize shareholder wealth.

A dual banking system means that both the federal government and individual states charter banks and credit unions.

True

A function of investment banking is to facilitate corporate mergers and acquisitions.

True

An independent bank operates a single organization that accepts deposits and makes loans.

True

Balance sheet items are calculated for a particular point in time.

True

Community banks tend to operate in a limited geographic region.

True

Demand for checking accounts is generally considered to be price inelastic.

True

Deposit service charges are a stable source of bank revenue.

True

Duration is an elasticity measure that indicates the relative price sensitivity of different securities.

True

Eliminating borrowing from the Federal Reserve at the end of fiscal year is an example or "window dressing."

True

It is more difficult for multibank holding companies to realize economies of scale if they allow subsidiary banks to retain key decision-making authority.

True

Larger banks have lower efficiency ratios, on average, than smaller banks.

True

Mortgage defaults were greatest in geographic markets that had experienced the greatest run-up in real estate prices.

True

Mortgage origination is countercyclical to a bank's net interest margin business.

True

Super-regional banks typically have limited global operations.

True

The Dodd-Frank Act eliminates "Too-Big-To-Fail" bailouts.

True

The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries is not well capitalized.

True

The Federal Reserve serves as the lender of last resort.

True

Thrifts are supervised by the Office of Thrift Supervision.

True

Total revenue is the same as total operating income.

True

Trading revenue for banks is highly cyclical.

True

Universal banks were originally centered in Western Europe.

True

When constructing ratios, average balance sheet data should be used.

True

Which of the following would not be considered a commercial loan? a. An interim construction loan b. A working capital loan c. A loans to another financial institution d. A loan to purchase a piece of industrial equipment e. A loan to expand a factory

a. An interim construction loan

Which of the following is not represented in the CAMELS ratings. a. Cash adequacy b. Asset quality c. Management quality d. Liquidity e. Sensitivity to market risk.

a. Cash adequacy

Which of the following would not be considered an earning asset? a. Cash due from banks b. Municipal securities c. Treasury bills d. Repurchase agreements e. Mortgages

a. Cash due from banks

Which of the following would be the least sensitive to changes in interest rates? a. Demand deposits b. Repurchase agreements c. Federal funds purchased d. Eurodollar liabilities e. Jumbo CDs

a. Demand deposits

The _________ authorized money market deposit accounts. a. Depository Institutions Act (Garn-St. Germain) b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

a. Depository Institutions Act (Garn-St. Germain)

The _________ mandated that the FDIC take prompt corrective action in dealing with bank failures. a. Depository Institutions Act (Garn-St. Germain) b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

a. Depository Institutions Act (Garn-St. Germain)

Which type of financial institution has seen the largest drop in their share of U.S. financial assets? a. Depository institutions b. Mutual funds c. Insurance companies d. Pension plans e. Finance companies

a. Depository institutions

The primary federal regulator of state banks that are not members of the Fed is the: a. FDIC. b. Office of the Comptroller of the Currency. c. Office of Thrift Supervision. d. State's banking department. e. National Credit Union Administration.

a. FDIC.

Which act separated commercial banking, investment banking and insurance into three separate industries? a. Glass-Steagall Act b. Bank Holding Company Act c. McFadden Act d. Federal Reserve Act e. Competitive Equality Banking Act

a. Glass-Steagall Act

__________ have a large international presence. a. Global banks b. Nationwide banks c. Super regional banks d. Regional banks e. Specialty Banks

a. Global banks

Which of the following is not a purpose of bank regulation? a. Guarantee minimal profitability of the banking system. b. Provide monetary stability. c. Ensure safety and soundness of banks. d. Provide a competitive financial system. e. Protect consumers from abuses by banks.

a. Guarantee minimal profitability of the banking system.

Return on risk-adjusted capital is defined as: a. Income/Allocated Risk Capital. b. Allocated Risk Capital/Adjusted Income. c. (Risk - Adjusted Income)/Capital. d. Capital/Allocated Risk Capital. e. Expenses + Target Profit.

a. Income/Allocated Risk Capital.

Deposits at credit unions are insured by the: a. National Credit Union Association. b. Federal Credit Union Administration. c. Federal Reserve. d. Federal Deposit Insurance Corporation. e. Credit Union Insurance Corporation.

a. National Credit Union Association.

Which of the following officially designates a bank as insolvent? a. Office of the Comptroller of the Currency b. Federal Reserve c. Office of Thrift Supervision d. Office of National Charters e. Resolution Trust Corporation

a. Office of the Comptroller of the Currency

For most banks, which of the following is the largest component of non-interest expense? a. Personnel expenses b. Rent c. Required reserves held at the Federal Reserve d. Electricity e. Depreciation on buildings and equipment

a. Personnel expenses

Which of the following would be considered an extraordinary item on an income statement of a bank? a. Revenue from the sale of the bank's office building. b. Interest income when the spread is greater than 10%. c. Realized security gains. d. Collection on loans already charged off. e. All of the above would be considered extraordinary items.

a. Revenue from the sale of the bank's office building.

The _________ allows adequately capitalized bank holding companies to acquire banks in any state. a. Riegle-Neal Interstate Banking and Branching Efficiency Act b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

a. Riegle-Neal Interstate Banking and Branching Efficiency Act

Which of the following allows depository institutions to borrow for a fixed term against a variety of collateral that is normally accepted for discount window loans? a. Term Auction Facility b. Term Securities Lending Facility c. Primary Dealer Credit Facility d. Troubled Asset Relief Program e. Housing and Economic Recovery Facility

a. Term Auction Facility

Which of the following is false regarding community banks? a. They typically have extensive operations in specific regions of the country. b. They typically operate in a limited geographic area. c. They often focus on lending to small businesses. d. The bulk of their funding comes from deposits. e. They tend to grow at a modest rate.

a. They typically have extensive operations in specific regions of the country.

The _________ authorized the Treasury to purchase debt securities issued by the Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and to purchase common stock. a. Treasury Emergency Authority Provisions b. Foreclosure Prevention Act c. Troubled Asset Relief Program d. Primary Dealer Credit Facility e. Check 21 Act

a. Treasury Emergency Authority Provisions

A negotiable instrument often used in trading goods that guarantees payment to the owner the instrument is known as (a): a. bankers acceptance. b. payment guarantee. c. commercial paper. d. bankers payment. e. repurchase agreement.

a. bankers acceptance.

The largest component of "non- interest cash and due from banks" is: a. cash items in process of collection. b. deposits held at other financial institutions. c. federal funds sold. d. vault cash. e. loans from the Federal Reserve.

a. cash items in process of collection.

A legal document that orders a firm to sop an unfair practice under full penalty of law is a: a. cease and desist order. b. capital request. c. memorandum of understanding. d. quality assurance directive. e. national bank order.

a. cease and desist order.

The operating risk ratio measures: a. cost controls versus fee generation. b. fee income versus net interest margin. c. noninterest expense versus non-interest income. d. depositors versus employees. e. depreciation versus required reserves.

a. cost controls versus fee generation.

Which of the following institutions' customers have a "common bond"? a. credit union b. commercial bank c. mortgage company d. savings bank e. thrift

a. credit union

All of the following are components of a bank's non-interest expense except:. a. deposit service fees. b. occupancy expense. c. goodwill impairment. d. personnel expense. e. other intangible amortization.

a. deposit service fees.

Banks created Section 20 affiliates to: a. engage in investment banking activities. b. make international loans. c. purchase savings and loans. d. invest in junk bonds. e. compete with general-purpose finance companies.

a. engage in investment banking activities.

Unsecured liabilities created from the exchange of immediately available funds are known as: a. federal funds purchased. b. repurchase agreements. c. federal funds sold. d. pledged securities. e. brokered deposits.

a. federal funds purchased.

A bank's equity multiplier measures the bank's: a. financial leverage. b. operating leverage. c. credit leverage. d. interest rate exposure. e. duration gap.

a. financial leverage.

Relative to wholesale banks, retail banks: a. focus on individual consumer banking relationships. b. operate with fewer consumer deposits. c. purchase more non-core liabilities. d. hold proportionally more business loans to large firms. e. All of the above.

a. focus on individual consumer banking relationships.

Banks generate their largest portion of income from: a. loans. b. short-term investment. c. demand deposits. d. long-term investments. e. certificates of deposit.

a. loans.

Profitable bank customers: a. make up a small fraction of all bank customers. b. generally shop for the bank with the lowest price. c. have small loan balances. d. always avoid service charges. e. are the most sensitive to changes in price.

a. make up a small fraction of all bank customers.

Many insurance companies have formed __________ to operate banks as part of their financial services efforts. a. one-bank holding companies b. multibank holding companies c. retail subsidiaries d. finance companies e. financial holding companies

a. one-bank holding companies

The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries: a. received an unsatisfactory in its most recent Community Reinvestment Act exam. b. has branches across state lines. c. is part of a bank holding company. d. makes subprime loans. e. is well capitalized.

a. received an unsatisfactory in its most recent Community Reinvestment Act exam.

Banks can increase their operating efficiencies by: a. reducing costs and maintaining the existing level of products and services. b. reducing costs and reducing the existing level of products and services. c. decreasing the level of output while maintaining the current level of expenses. d. increasing the level of output while increasing the level of expenses. e. decreasing workflow.

a. reducing costs and maintaining the existing level of products and services.

Total operating income is comparable to _________ for a non-financial firm. a. sales b. cost of goods sold c. gross profit d. earnings before interest and taxes e. net income

a. sales

An example of a contra-asset account is: a. the loan and lease loss allowance. b. unearned income. c. buildings and equipment. d. revenue bonds. e. the provision for loan loss.

a. the loan and lease loss allowance.

Everything else the same, financial leverage works to a bank's advantage when: a. the return on assets is positive. b. the return on assets is negative. c. fixed assets are high. d. fixed assets are low. e. a. and d.

a. the return on assets is positive.

Many insurance companies have organized as a _____________ in order to own a depository institution and bypass prohibitions in the Glass-Steagall Act and the Bank Holding Company Act. a. unitary thrift holding company b. commercial bank c. mortgage company d. savings bank e. credit union

a. unitary thrift holding company

At the end of 2013, there were approximately ______ independent banks and thrifts in operation in the United States. a. 300 b. 1,800 c. 4,200 d. 4,500 e. 6,300

b. 1,800

The Federal Reserve has Reserve Banks and branches in ___ districts across the country. a. 10 b. 12 c. 14 d. 16 e. 18

b. 12

In the CAMELS ratings, which reflects the bank's off-balance sheet activities? a. Capital adequacy b. Asset quality c. Earnings quality d. Liquidity e. Sensitivity to market risk

b. Asset quality

Which act limited the activities a company could engage in if it owned a bank? a. Federal Reserve Act b. Bank Holding Company Act c. McFadden Act d. Glass-Steagall Act e. Competitive Equality Banking Act

b. Bank Holding Company Act

_________ own(s) the bulk of demand deposit accounts. a. Consumers b. Businesses c. State governments d. The federal government e. Non-profits

b. Businesses

Which of the following is not one of the Fed's monetary policy tools? a. Open market operations b. Changes in the fed funds rate c. Changes in the discount rate d. Changes in the required reserve ratio e. All of the above are monetary policy tools of the Fed

b. Changes in the fed funds rate

The _________ expanded the FDIC's authority for open bank assistance. a. Depository Institutions Act (Garn-St. Germain) b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

b. Competitive Equality Banking Act

The Federal Deposit Insurance Reform Act of 2005 created which of the following? a. Bank Insurance Fund b. Deposit Insurance Fund c. Savings Association Insurance Fund d. National Credit Union Shares Insurance Fund e. Federal Savings and Loan Insurance Fund

b. Deposit Insurance Fund

The Consumer Financial Protection Bureau was created as part of the: a. Hope for Homeowners Act b. Dodd-Frank Act c. Fair and Accurate Credit Transactions Act d. Gramm-Leach-Bliley Act e. Sarbanes-Oxley Act

b. Dodd-Frank Act

Which of the following is the receiver of a failed depository institution? a. Federal Reserve b. Federal Deposit Insurance Corporation c. Office of the Comptroller of the Currency d. Office of Thrift Supervision e. Federal Savings and Loan Insurance Corporation

b. Federal Deposit Insurance Corporation

The primary federal regulator of state banks that are members of the Fed is the: a. Resolution Trust Corporation b. Federal Reserve c. Office of the Comptroller of the Currency d. State Banking Authorities. e. Federal Deposit Insurance Corporation.

b. Federal Reserve

At the end of 2008, which of the following investment banks remained independent? a. Bear Sterns b. Goldman Sachs c. Lehman Brothers d. Merrill Lynch e. a. and b.

b. Goldman Sachs

The _________ gave regulatory responsibility over financial holding companies to the Federal Reserve.. a. Riegle-Neal Interstate Banking and Branching Efficiency Act b. Gramm-Leach-Bliley Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

b. Gramm-Leach-Bliley Act

The _________ repealed the Glass-Steagall Act. a. Riegle-Neal Interstate Banking and Branching Efficiency Act b. Gramm-Leach-Bliley Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

b. Gramm-Leach-Bliley Act

The _________ requires disclosure of a bank's privacy policy. a. Riegle-Neal Interstate Banking and Branching Efficiency Act b. Gramm-Leach-Bliley Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

b. Gramm-Leach-Bliley Act

Which of the following is not a characteristic of a typical commercial bank? a. Most banks own few fixed assets. b. Most banks have a high degree of operating leverage. c. Most banks have few fixed costs. d. Many bank liabilities are payable on demand. e. Banks generally operate with less equity capital than non-financial firms.

b. Most banks have a high degree of operating leverage.

______________ refers to the process of pooling a group of assts with similar features and issuing securities that are collateralized by the assets. a. Originate-to-Resell b. Securitization c. Mortgage Collateralization d. Deposit Origination e. Loan-to-Distribute

b. Securitization

Which of the following bank assets is the most liquid? a. Long-term investments b. Short-term investments c. Loans d. Demand deposits e. Unearned income

b. Short-term investments

Which of the following loans Treasury securities to primary dealers in exchange for other securities held by the dealers? a. Term Auction Facility b. Term Securities Lending Facility c. Primary Dealer Credit Facility d. Troubled Asset Relief Program e. Housing and Economic Recovery Facility

b. Term Securities Lending Facility

Which of the following was a goal of the Depository Institutions Deregulation and Monetary Control Act of 1980? a. To reduce the range of banking services offered. b. To allow banks to pay market rates on deposits. c. To allow banks to make long-term mortgage loans. d. To allow banks to offer Money Market Deposit Accounts. e. To reduce the number of leveraged buyouts.

b. To allow banks to pay market rates on deposits.

The efficiency ratio measures: a. a bank's ability to control interest expense. b. a bank's ability to control non-interest expense. c. a bank's spread. d. a bank's burden. e. a bank's operating leverage.

b. a bank's ability to control non-interest expense.

Historically, a commercial bank was defined as a firm that: a. accepted NOW accounts and made consumer loans. b. accepted demand deposits and made business loans. c. accepted government deposits and made public loans. d. accepted demand deposits and made consumer loans. e. is regulated by the Federal Reserve.

b. accepted demand deposits and made business loans.

In general, _______________ are the major non-credit cost for commercial customers. a. personnel expenses b. check-processing costs c. loan administration expenses d. fraud costs e. default costs

b. check-processing costs

Total operating expense is comparable to _________ for a non-financial firm. a. sales b. cost of goods sold + other operating expenses c. interest expense d. earnings before taxes e. net income

b. cost of goods sold + other operating expenses

When two banks that merge have a significant duplication of bank offices such that the merger leads to the elimination of branches and personnel, this is known as a(n): a. out-of-market merger. b. in-market merger. c. new-market merger. d. reduced-branch merger. e. goodwill merger.

b. in-market merger.

Non-interest income includes all of the following except: a. monthly fee income on checking accounts. b. late fees on loans. c. trust income. d. insufficient funds service charges. e. all of the above are considered non-interest income.

b. late fees on loans.

Bank holding companies and financial holding companies generally do not pay income tax because: a. they are always chartered as non-profit corporations. b. most of their income is subsidiary paid dividends, of which 80% is tax-exempt. c. the subsidiaries always operate at a net loss. d. bank holding companies must carry deposit insurance. e. bank holding companies are not subject to Internal Revenue Service regulations.

b. most of their income is subsidiary paid dividends, of which 80% is tax-exempt.

A primary purpose of maintaining the safety and soundness of banks is to: a. encourage loan growth. b. protect depositors. c. ensure liquidity for the stock market. d. prevent discrimination. e. minimize bank losses.

b. protect depositors.

Securities that are "held-to-maturity" are: a. trading account securities. b. recorded on the balance sheet at amortized cost. c. marked-to-market. d. a. and b. e. a. and c.

b. recorded on the balance sheet at amortized cost.

The "provision for loan and lease losses": a. are the realized losses from the previous accounting period. b. represents management's estimate of potential lost revenue from bad loans. c. determined by the Federal Reserve for all banks. d. does not affect net income. e. is another name for a bank's "burden."

b. represents management's estimate of potential lost revenue from bad loans.

A bank's core deposits are: a. vault cash. b. stable deposits that are not typically withdrawn over short periods of time. c. the bank's deposits at the Federal Reserve. d. the most interest rate sensitive liabilities of a bank. e. deposits held in foreign offices.

b. stable deposits that are not typically withdrawn over short periods of time.

Recoveries refer to: a. the dollar value of loans actually written off as uncollectible. b. the dollar amount of loans that were previously charged-off but now collected. c. net charge-offs. d. loans not currently accruing interest. e. loans that regulators have required the bank to "recover".

b. the dollar amount of loans that were previously charged-off but now collected.

Return on equity can be decomposed into: a. the sum of return on assets and the equity multiplier. b. the product of return on assets and the equity multiplier. c. the product of the profit margin and the equity multiplier. d. the sum of the profit margin and the equity multiplier. e. the sum of the profit margin, equity multiplier, and the interest ratio.

b. the product of return on assets and the equity multiplier.

Net income is calculated as: a. total revenue - total operating expenses. b. total revenue - total operating expenses - taxes. c. asset utilization - expense ratio. d. asset utilization - expense ratio - tax ratio. e. interest expense ratio - non-interest expense ratio - provision for loan loss ratio.

b. total revenue - total operating expenses - taxes.

Securities that require unrealized gains or losses to be recorded on the income statement are called: a. held-to-maturity securities. b. trading account securities. c. available-for-sale securities. d. revenue securities. e. repurchase agreements

b. trading account securities.

Deposit insurance was increased to __________ per depositor in 2008. a. $100,000 b. $150,000 c. $250,000 d. $300,000 e. $500,000

c. $250,000

S-corps must have no more than ___ shareholders. a. 10 b. 50 c. 100 d. 500 e. 1,000

c. 100

The _________ created the Office of Thrift Supervision. a. Depository Institutions Act (Garn-St. Germain) b. Competitive Equality Banking Act c. Financial Institutions Reform, Recovery and Enforcement Act d. Federal Deposit Insurance Corporation Improvement Act e. Depository Institutions Deregulation and Monetary Control Act

c. Financial Institutions Reform, Recovery and Enforcement Act

Which of the following is not listed on a bank's UBPR as noninterest income? a. Deposit service charges b. Insurance commission fees c. Goodwill impairment d. Net gains on sales of loans. e. Investment banking fees

c. Goodwill impairment

Which type of risk is the most difficult to quantify? a. Credit risk b. Liquidity risk c. Legal risk d. Operating risk e. Market risk

c. Legal risk

______________ is/are the primary revenue source for a majority of banks. a. Check-processing fees b. Investment income from deposit balances c. Loan interest d. Earnings credits e. Swaps

c. Loan interest

Checking accounts with unlimited check-writing and pay interest are known as: a. demand deposit accounts. b. money market deposit accounts. c. NOW accounts. d. certificates of deposit. e. time deposits.

c. NOW accounts.

Net income is defined as: a. Net interest income - burden + provision for loan loss + securities gains or losses - taxes. b. Net interest income + burden + provision for loan loss + securities gains or losses - taxes. c. Net interest income - burden - provision for loan loss + securities gains or losses - taxes. d. Net interest income - burden - provision for loan loss + securities gains or losses + taxes. e. Net interest income + burden - provision for loan loss + securities gains or losses - taxes.

c. Net interest income - burden - provision for loan loss + securities gains or losses - taxes.

A new charter to start a federal savings association is obtained from the: a. Office of the Comptroller of the Currency. b. National Credit Union Administration. c. Office of Thrift Supervision. d. State banking department. e. Federal Reserve

c. Office of Thrift Supervision.

Which of the following is not one of the risks identified by the Federal Reserve Board? a. Credit risk b. Market risk c. Ownership risk d. Reputation risk e. Legal risk

c. Ownership risk

Which of the following is an overnight collateralized loan facility that provides loans for up to 120 days to primary dealers in exchange for a broad range of collateral? a. Term Auction Facility b. Term Securities Lending Facility c. Primary Dealer Credit Facility d. Troubled Asset Relief Program e. Housing and Economic Recovery Facility

c. Primary Dealer Credit Facility

Which of the following would a bank generally classify as a short-term investment? a. Demand deposits b. Deposits at the Federal Reserve c. Repurchase agreements d. Fed Funds purchased e. Vault cash

c. Repurchase agreements

Which of the following is not considered a non-interest expense? a. Wages and salaries b. Rent c. Required reserves held at the Federal Reserve d. Electricity e. Employee benefits

c. Required reserves held at the Federal Reserve

___-corps have favorable tax treatment because a qualifying firm does not pay corporate income taxes. a. C b. Q c. S d. V e. Z

c. S

What is the primary motivation today of forming a financial holding company? a. To increase speculation. b. To branch across state lines. c. To engage in activities not permitted in a bank holding company. d. To branch within a particular states boundaries. e. To reduce the risk of bank failures.

c. To engage in activities not permitted in a bank holding company.

The _________ created a fund originally designed to allow the U.S. Treasury to purchase distressed assets from financial institutions. a. Capital Purchase Program b. Foreclosure Prevention Act c. Troubled Asset Relief Program d. Primary Dealer Credit Facility e. Check 21 Act

c. Troubled Asset Relief Program

Federal Reserve Reg. ____ requires disclosure of as to why a costumer was denied credit. a. AA b. BB c. Z d. C e. B

c. Z

A bank that deals primarily with commercial customers is called: a. an Edge Act bank. b. a retail bank. c. a wholesale bank. d. a uniform bank. e. a liability bank.

c. a wholesale bank.

Return on assets can be calculated as: a. return on equity plus the equity multiplier. b. net interest income divided by earning assets. c. asset utilization minus the expense ratio and the tax ratio. d. interest income minus interest expense. e. earning assets divided by average total assets.

c. asset utilization minus the expense ratio and the tax ratio.

Securities that require unrealized gains or losses to be recorded as a change in stockholder's equity are called: a. held-to-maturity securities. b. trading account securities. c. available-for-sale securities. d. revenue securities. e. repurchase agreements

c. available-for-sale securities.

The U.S. government took all of the following actions to address the credit crisis in 2008 except: a. putting Fannie Mae into conservatorship. b. passed the Troubled Asset Relief Program (TARP). c. created the Keep Banks Solvent (KBS) agency. d. authorized large non-financial firms to sell bonds that were FDIC-insured. e. temporarily increased FDIC domestic deposit coverage to $250,000.

c. created the Keep Banks Solvent (KBS) agency.

Bank assets fall into each of the following categories except: a. loans. b. investment securities. c. demand deposits. d. noninterest cash and due from banks. e. other assets.

c. demand deposits.

If a bank pays 62 cents in non-interest expense per dollar of income, its _______ is equal to 0.62. a. burden b. net non-interest margin c. efficiency ratio d. overhead ratio e. noninterest expense ratio

c. efficiency ratio

All other things constant, securities that are extremely liquid: a. earn higher rates of return than securities that are less liquid. b. have a longer maturity than less liquid securities. c. have lower risk than less liquid securities. d. a. and b. e. b. and c.

c. have lower risk than less liquid securities.

Non-interest expenses includes all of the following except: a. occupancy expenses. b. goodwill impairment. c. insufficient funds service charges. d. personnel expenses. e. all of the above are considered non-interest expense.

c. insufficient funds service charges.

Core deposits consist of all of the following except: a. demand deposits. b. NOW accounts. c. jumbo certificates of deposit. d. savings accounts. e. money market demand accounts.

c. jumbo certificates of deposit.

A formal regulatory document that prescribes corrective action for a problem institution is called a: a. cease and desist order. b. capital request. c. memorandum of understanding. d. quality assurance directive. e. national bank order.

c. memorandum of understanding.

A bank's "burden" is defined as: a. net interest income minus non-interest income. b. non-interest income minus non-interest expense. c. non-interest expense minus non-interest income. d. net interest income plus non-interest income. e. interest expense plus non-interest expense.

c. non-interest expense minus non-interest income.

Relative to retail banks, wholesale banks: a. deal primarily with consumers. b. operate with fewer commercial deposits. c. purchase more non-core liabilities. d. hold proportionally more consumer loans. e. All of the above.

c. purchase more non-core liabilities.

Bank regulations: a. can prevent bank failures. b. can eliminate economic risk for banks. c. serve as guidelines for sound operating policies. d. guarantee bankers will make sound management decisions. e. guarantee bankers act in an ethical manner.

c. serve as guidelines for sound operating policies.

Commercial banks mostly specialize in: a. mortgages. b. mutual loans. c. short-term business credit. d. savings accounts. e. share draft accounts.

c. short-term business credit.

Today, the primary motivation behind forming a bank holding company is: a. to reduce competition. b. the ability to circumvent restrictions on branching. c. to broaden the scope of products the bank can offer. d. to increase deposit concentration. e. All of the above are motivating factors today for forming a bank holding company.

c. to broaden the scope of products the bank can offer.

Originally, the FDIC insured deposits up to: a. $100,000 b. $50,000 c. $25,000 d. $10,000 e. $5,000

e. $5,000

Currently, the Fed sets the discount rate __________ the target fed funds rate. a. 1% - 1.5% below b. 2% - 2.5% below c. 3% - 3.5% above d. 2% - 2.5% above e. 1% - 1.5% above

e. 1% - 1.5% above

Savings institutions must maintain what percent of their assets in housing-related assets to be considered a "Qualified Thrift Lender"? a. 100% b. 15% c. 70% d. 85% e. 65%

e. 65%

A financial holding company cannot own which of the following? a. A bank. b. A bank holding company. c. A thrift. d. A thrift holding company. e. A financial holding company may own all of the above.

e. A financial holding company may own all of the above.

Which of the following is not a component of the Farm Credit System? a. Farm Credit Banks b. Agricultural Credit Associations c. Federal Land Credit Associations d. Farm Credit Administration e. Agricultural Lending Office

e. Agricultural Lending Office

A change in net interest income would occur when: a. the composition of the assets of the bank change. b. the average asset yield changes. c. the volume of the assets of the bank change. d. the average interest expense changes. e. All of the above

e. All of the above

Federal Reserve Reg. ____ makes it illegal for any lender to discriminate on the basis of national origin. a. AA b. BB c. Z d. C e. B

e. B

_________ allowed any institution to "truncate" the paper check at any point in the check clearing process. a. Riegle-Neal Interstate Banking and Branching Efficiency Act b. Fair and Accurate Credit Transactions Act c. Troubled Asset Relief Program d. Sarbanes-Oxley Act e. Check 21 Act

e. Check 21 Act

In 2010, Congress passed the ______________ which addressed a wide range of problems associated with the financial crisis, including Too Big to Fail banks. a. Sarbanes-Oxley Act b. Troubled Asset Relief Program c. Glass-Steagall Act d. Gramm-Leach-Bliley Act e. Dodd-Frank Act

e. Dodd-Frank Act

__________ is not a measure of bank productivity? a. Assets per employee b. Average personnel expense c. Loans per employee d. Net income per employee e. Number of customers per employee

e. Number of customers per employee

Which of the following statements is/are correct? a. Higher capital requirements often result in a higher cost of capital for banks. b. Small banks have greater access to the equity markets than large banks. c. Higher capital requirements encourage small banks to consolidate into larger banks. d. All of the above are correct. e. Only a. and c. are correct.

e. Only a. and c. are correct.

Which of the following is not a channel for delivering banking services? a. Mobile banking. b. Online banking. c. Automated Teller Machines. d. Branch banking. e. Retail banking.

e. Retail banking.

A new charter to start a state bank must be obtained from the: a. Federal Reserve. b. Federal Deposit Insurance Corporation. c. Office of the Comptroller of the Currency. d. Office of Thrift Supervision. e. State banking department.

e. State banking department.

Which of the following led to the sharp decline in bank profits in 2008? a. Record high loan loss provisions b. Record gains in trading activities d. Significant goodwill impairment expenses d. All of the above. e. a. & c. only.

e. a. & c. only.

Interest income includes: a. interest earned on all of the bank's assets. b. fees earned on all of the bank's assets. c. fees earned on all of the bank's deposit accounts. d. all of the above. e. a. and b. only

e. a. and b. only

Which of the following mortgage types were offered to "subprime" borrowers? a. Interest Only b. Option Adjustable-Rate c. Principal Only d. All of the above e. a. and b. only

e. a. and b. only

In 2008, the U.S. Treasury financial supported financial institutions by: a. purchasing troubled assets. b. buying preferred stock in some financial institutions. c. issuing guarantees on money market funds. d. increasing the deposit insurance limit. e. all of the above.

e. all of the above.

Banks experience economies of scale when: a. marginal costs increase as total costs decrease. b. total costs decrease as output decreases. c. total costs increase as output increases. d. average unit costs increase as output increases. e. average unit costs decrease as output increases.

e. average unit costs decrease as output increases.

Jumbo certificates of deposit (CDs) typically: a. have maturities greater than 10 years.. b. are negotiable. c. are $1 million in size. d. All of the above e. b. and c.

e. b. and c.

All of the following are examples of operational risk except: a. fraud. b. compromised security data. c. theft. d. business interruptions. e. default on a loan.

e. default on a loan.

The volume of net deferred credit is commonly referred to as: a. the burden. b. NOW balances. c. reserve requirements. d. equity. e. float.

e. float.

Net interest income is the difference between: a. gross interest income and net interest expense. b. gross interest income and non-interest income. c. the burden and realized gains or losses. d. non-interest income and net interest expense. e. gross interest income and gross interest expense.

e. gross interest income and gross interest expense.

The expense ratio is calculated as: a. total revenue - total operating expenses. b. total revenue - total operating expenses - taxes. c. interest expense ratio - non-interest expense ratio - provision for loan loss ratio. d. asset utilization - expense ratio - tax ratio. e. interest expense ratio + non-interest expense ratio + provision for loan loss ratio.

e. interest expense ratio + non-interest expense ratio + provision for loan loss ratio.

The risk that a bank cannot meet payment obligations in a timely and cost-effective manner is known as: a. credit risk. b. capital risk. c. market risk. d. operating risk. e. liquidity risk.

e. liquidity risk.

The lack of incentive to guard against risk where one is protected from it is known as: a. risk aversion b. too big to fail c. protection guarantee d. incentive failure e. moral hazard

e. moral hazard

Loans typically fall into each of the following categories except: a. real estate. b. individual. c. commercial. d. agricultural. e. municipal.

e. municipal.

An "independent" bank is: a. an "independent" subsidiary of a multi-bank holding company. b. another name for a one-bank holding company. c. a bank that is exempt from paying federal income taxes. d. a bank that is specifically created to underwrite corporate debt issues. e. not controlled by a multi-bank holding company or any other outside interest.

e. not controlled by a multi-bank holding company or any other outside interest.

A loan to an individual to purchase a home would be considered a: a. consumer loan. b. commercial loan. c. agricultural loan. d. construction loan. e. real estate loan.

e. real estate loan.

A savings and loan that sold off their junk bond holdings and issued consumer auto loans with the proceed would most likely be: a. decreasing their market risk. b. increasing their capital risk. c. decreasing their legal risk. d. increasing their operating risk. e. reducing their credit risk.

e. reducing their credit risk.