Chapter 11

In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent and 3.5 percent; in the 1980s it fluctuated between ________ percent and ________ percent. A) 5; 15 B) 4; 11.5 C) 4; 18 D) 5; 10

A) 5; 15

Deposits in European banks denominated in dollars for the purpose of international transactions are known as A) Eurodollars. B) European Currency Units. C) European Monetary Units. D) International Monetary Units.

A) Eurodollars.

The FHLBS gives loans to S&Ls and thus performs a function similar to the ________ for commercial banks. A) Federal Reserve B) U.S. Treasury C) Office of the Comptroller of the Currency D) U.S. Mint

A) Federal Reserve

The main center of the Eurodollar market is A) London. B) Basel. C) Paris. D) New York

A) London.

The legislation that effectively prohibited banks from branching across state lines and forced all national banks to conform to the branching regulations in the state in which they reside is the A) McFadden Act. B) National Bank Act. C) Glass-Steagall Act. D) Garn-St.Germain Act.

A) McFadden Act.

In 1977, he pioneered the concept of selling new public issues of junk bonds for companies that had not yet achieved investment-grade status. A) Michael Milken B) Roger Milliken C) Ivan Boesky D) Carl Icahn

A) Michael Milken

To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________. A) National Bank Act of 1863; Office of the Comptroller of the Currency B) Federal Reserve Act of 1863; Office of the Comptroller of the Currency C) National Bank Act of 1863; Office of Thrift Supervision D) Federal Reserve Act of 1863; Office of Thrift Supervision

A) National Bank Act of 1863; Office of the Comptroller of the Currency

The Second Bank of the United States was denied a new charter by A) President Andrew Jackson. B) Vice President John Calhoun. C) President Benjamin Harrison. D) President John Q. Adams.

A) President Andrew Jackson.

Prior to 2008, bank managers looked on reserve requirements A) as a tax on deposits. B) as a subsidy on deposits. C) as a subsidy on loans. D) as a tax on loans.

A) as a tax on deposits.

Financial innovations that grew out of the bank branching restrictions were A) bank holding companies and automated teller machines. B) bank holding companies and securitization. C) automated teller machines and sweep accounts. D) automated teller machines and bank credit cards.

A) bank holding companies and automated teller machines.

The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the A) central bank. B) commercial bank. C) bank of settlement. D) monetary fund.

A) central bank.

One factor contributing to the decline in cost advantages that banks once had is the A) decline in the importance of checkable deposits from over 60 percent of banks' liabilities to 2 percent today. B) decline in the importance of savings deposits from over 60 percent of banks' liabilities to under 15 percent today. C) decline in the importance of checkable deposits from over 40 percent of banks' liabilities to 15 percent today. D) decline in the importance of savings deposits from over 40 percent of banks' liabilities to under 20 percent today.

A) decline in the importance of checkable deposits from over 60 percent of banks' liabilities to 2 percent today.

Eurodollars are A) dollar-dominated deposits held in banks outside the United States. B) deposits held by U.S. banks in Europe. C) deposits held by U.S. banks in foreign countries. D) dollar-dominated deposits held in U.S. banks by Europeans.

A) dollar-dominated deposits held in banks outside the United States.

Unlike banks, ________ have been allowed to branch statewide since 1980. A) federally-chartered S&Ls B) state-chartered S&Ls C) financially troubled S&Ls D) technically insolvent S&Ls

A) federally-chartered S&Ls

Money market mutual funds A) function as interest-earning checking accounts. B) are legally deposits. C) are subject to reserve requirements. D) have an interest-rate ceiling.

A) function as interest-earning checking accounts.

Since 1974, commercial banks importance as a source of funds for nonfinancial borrowers A) has shrunk dramatically, from around 40 percent of total credit advanced to around 25 percent by 2014. B) has shrunk dramatically, from around 70 percent of total credit advanced to below 50 percent by 2014. C) has expanded dramatically, from around 50 percent of total credit advanced to above 70 percent by 2014. D) has expanded dramatically, from around 30 percent of total credit advanced to above 50 percent by 2014.

A) has shrunk dramatically, from around 40 percent of total credit advanced to around 25 percent by 2014.

Sweep accounts A) have made reserve requirements nonbinding for many banks. B) sweep funds out of deposit accounts into long-term securities. C) enable banks to avoid paying interest to corporate customers. D) reduce banks' assets.

A) have made reserve requirements nonbinding for many banks.

So-called fallen angels differ from junk bonds in that A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously issued bonds that have had their credit ratings fall below Baa. B) junk bonds refer to previously issued bonds that have had their credit ratings fall below Baa, whereas fallen angels refer to newly issued bonds with low credit ratings. C) junk bonds have ratings below Baa, whereas fallen angels have ratings below C. D) fallen angels have ratings below Baa, whereas junk bonds have ratings below C.

A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously issued bonds that have had their credit ratings fall below Baa.

One of the concerns of increased bank consolidation is the reduction in community banks which could result in A) less lending to small businesses. B) loss of cultural identity. C) higher interest rates. D) more bank regulation.

A) less lending to small businesses.

A firm issuing credit cards earns income from A) loans it makes to credit card holders. B) subsidies from the local governments. C) payments made to it by manufacturers of the products sold in stores on credit card purchases. D) sales of the card in foreign countries.

A) loans it makes to credit card holders.

ATMs were developed because of breakthroughs in technology and as a A) means of avoiding restrictive branching regulations. B) means of avoiding paying interest to corporate customers. C) way of concealing transactions from the SEC. D) increasing the competition from foreign banks.

A) means of avoiding restrictive branching regulations.

An advantage to American banks from operating foreign branches is that Eurodollar deposits in offshore branches are A) not subject to reserve requirements. B) insured by the FDIC. C) subject to extensive regulatory supervision. D) all demand deposits that pay no interest.

A) not subject to reserve requirements.

Credit cards date back to A) prior to the second World War. B) just after the second World War. C) the early 1950s. D) the late 1950s.

A) prior to the second World War.

Financial innovations occur because of financial institutions search for A) profits. B) fame. C) stability. D) recognition.

A) profits.

Adjustable rate mortgages A) reduce the interest-rate risk for financial institutions. B) benefit homeowners when interest rates rise. C) generally have higher initial interest rates than conventional fixed-rate mortgages. D) allow borrowers to avoid paying interest on portions of their mortgage loans.

A) reduce the interest-rate risk for financial institutions.

Like the dual banking system for commercial banks, thrifts can have either ________ or ________ charters. A) state; federal B) state; local C) local; federal D) municipal; federal

A) state; federal

Bank holding companies that rival money center banks in size, but are not located in money center cities are A) superregional banks. B) bank clearing houses. C) international banks. D) local banks.

A) superregional banks.

Banks responded to disintermediation by A) supporting the elimination of interest rate regulations, enabling them to better compete for funds. B) opposing the elimination of interest rate regulations, as this would increase their cost of funds. C) demanding that interest rate regulations be imposed on money market mutual funds. D) supporting the elimination of interest rate regulations, as this would reduce their cost of funds.

A) supporting the elimination of interest rate regulations, enabling them to better compete for funds.

In this type of arrangement, any balances above a certain amount in a corporation's checking account at the end of the business day are "removed" and invested in overnight securities that pay the corporation interest. This innovation is referred to as a A) sweep account. B) share draft account. C) removed-repo account. D) stockman account.

A) sweep account.

As a result of the global financial crisis several of the large, free-standing investment banking firms chose to become bank holding companies. This means that they will now be regulated by A) the Federal Reserve. B) the FDIC. C) the state banking authorities. D) the Treasury.

A) the Federal Reserve.

Under the Gramm-Leach-Bliley Act the oversight of the securities activities of bank holding companies belongs to A) the SEC. B) the Comptroller of the Currency. C) the U.S. Treasury. D) the Federal Reserve.

A) the SEC.

The development of money market mutual funds contributed to the growth of ________ since the money market mutual funds need to hold liquid, high-quality, short-terms assets. A) the commercial paper market B) the municipal bond market C) the corporate bond market D) the junk bond market

A) the commercial paper market

The spectacular growth in international banking can be explained by A) the rapid growth in international trade. B) the 1988 Basel Agreement. C) the collapse of the Bretton Woods system. D) the creation of the World Trade Organization.

A) the rapid growth in international trade.

Mutual savings banks are primarily regulated by A) the states in which they are located. B) the Federal Reserve. C) the FDIC. D) the National Credit Union Administration.

A) the states in which they are located.

Which of the following is NOT part of the shadow banking system? A) the transformer B) the servicer C) the bundler D) the distributor

A) the transformer

In September 2008, the Reserve Primary Fund, a money market mutual fund, found itself in the situation know as "breaking the buck." This means that A) they could no longer afford to redeem shares at the par value of $1. B) they required shareholders to contribute a dollar more in fees each month. C) shareholders were able to redeem shares for more than a $1. D) shares earned more than a dollar in interest.

A) they could no longer afford to redeem shares at the par value of $1.

In a ________ banking system, commercial banks provide a full range of banking, securities, and insurance services, all within a single legal entity. A) universal B) severable C) barrier-free D) dividerless

A) universal

State banking authorities have sole jurisdiction over state banks A) without FDIC insurance. B) that are not members of the Federal Reserve System. C) operating as bank holding companies. D) chartered in the 21st century.

A) without FDIC insurance.

In a ________ banking system, commercial banks engage in securities underwriting, but legal subsidiaries conduct the different activities. Also, banking and insurance are not typically undertaken together in this system. A) universal B) British-style universal C) short-fence D) compartmentalized

B) British-style universal

State banks that are not members of the Federal Reserve System are most likely to be examined by the A) Federal Reserve System. B) FDIC. C) FHLBS. D) Comptroller of the Currency.

B) FDIC.

A major difference between the United States and Japanese banking systems is that A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot. B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot. C) bank holding companies are illegal in the United States. D) Japanese banks are usually organized as bank holding companies.

B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot.

Which of the following statements concerning bank regulation in the United States is TRUE? A) The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System. B) The Federal Reserve and the state banking authorities jointly have responsibility for the state banks that are members of the Federal Reserve System. C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies. D) The state banking authorities have sole regulatory responsibility for all state banks.

B) The Federal Reserve and the state banking authorities jointly have responsibility for the state banks that are members of the Federal Reserve System.

Both ________ and ________ were financial innovations that occurred because of interest rate volatility. A) adjustable-rate mortgages; commercial paper B) adjustable-rate mortgages; financial derivatives C) sweep accounts; financial derivatives D) sweep accounts; commercial paper

B) adjustable-rate mortgages; financial derivatives

Since 1980 A) banks have decreased risk taking to offset the decline in profits. B) banks have offset the decline in profits from traditional activities with increased income from off-balance-sheet activities. C) banks have offset the decline in profits from off-balance-sheet activities with increased income from traditional activities. D) bank profits have grown rapidly due to deregulation.

B) banks have offset the decline in profits from traditional activities with increased income from off-balance-sheet activities.

Financial innovation has caused A) banks to suffer declines in their cost advantages in acquiring funds, although it has not caused a decline in income advantages. B) banks to suffer a simultaneous decline of cost and income advantages. C) banks to suffer declines in their income advantages in acquiring funds, although it has not caused a decline in cost advantages. D) banks to achieve competitive advantages in both costs and income.

B) banks to suffer a simultaneous decline of cost and income advantages.

The ability to use one resource to provide different products and services is A) economies of scale. B) economies of scope. C) diversification. D) vertical integration.

B) economies of scope.

The National Bank Act of 1863, and subsequent amendments to it A) created a banking system of state-chartered banks. B) established the Office of the Comptroller of the Currency. C) broadened the regulatory powers of the Federal Reserve. D) created insurance on deposit accounts.

B) established the Office of the Comptroller of the Currency

Financial instruments whose payoffs are linked to previously issued securities are called A) grandfathered bonds. B) financial derivatives. C) hedge securities. D) reversible bonds.

B) financial derivatives.

Thrift institutions importance as a source of funds for borrowers A) has shrunk from around 40 percent of total credit advanced in the late 1970s to below 30 percent by 2014. B) has shrunk from over 20 percent of total credit advanced in the late 1970s to around 3 percent by 2014. C) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 25 percent by 2014. D) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 30 percent by 2014.

B) has shrunk from over 20 percent of total credit advanced in the late 1970s to around 3 percent by 2014.

One factor contributing to the rapid growth of the commercial paper market since 1970 is A) the fact that commercial paper has no default risk. B) improved information technology making it easier to screen credit risks. C) government regulation. D) FDIC insurance for commercial paper.

B) improved information technology making it easier to screen credit risks.

The decline in traditional banking internationally can be attributed to A) increased regulation. B) improved information technology. C) increasing monopoly power of banks over depositors. D) increased protection from competition.

B) improved information technology.

The large number of banks in the United States is an indication of A) vigorous competition within the banking industry. B) lack of competition within the banking industry. C) only efficient banks operating within the United States. D) consumer preference for local banks.

B) lack of competition within the banking industry.

With the creation of the Federal Deposit Insurance Corporation A) member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors, while non-member commercial banks were required to buy deposit insurance. B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while non-member commercial banks could choose to buy deposit insurance. C) both member and non-member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors. D) both member and non-member banks of the Federal Reserve System could choose, but were not required, to purchase FDIC insurance for their depositors.

B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while non-member commercial banks could choose to buy deposit insurance.

Banks have attempted to maintain adequate profit levels by A) making fewer riskier loans, such as commercial real estate loans. B) pursuing new off-balance-sheet activities. C) increasing reserve deposits at the Fed. D) decreasing capital accounts.

B) pursuing new off-balance-sheet activities

Because of securitization, a new class of residential mortgages offered to borrowers with less-than-stellar credit records developed. These mortgages are known as A) risk-enhanced mortgages. B) subprime mortgages. C) bundled mortgages. D) adjustable-rate mortgage

B) subprime mortgages.

Sweep accounts which were created to avoid reserve requirements became possible because of a change in A) deposit ceilings. B) technology. C) government rules. D) bank mergers.

B) technology.

The most important developments that reduced banks cost advantages include A) the growth of the junk bond market. B) the competition from money market mutual funds. C) the growth of securitization. D) the growth in the commercial paper market.

B) the competition from money market mutual funds.

The most significant change in the economic environment that changed the demand for financial products in recent years has been A) the aging of the baby-boomer generation. B) the dramatic increase in the volatility of interest rates. C) the dramatic increase in competition from foreign banks. D) the deregulation of financial institutions.

B) the dramatic increase in the volatility of interest rates.

Reasons for holding Eurodollars include A) the fact that Eurodollar deposits are insured by the FDIC. B) the fact that dollars are widely used to conduct international transactions. C) the fact that minimum transaction sizes are very low, making Eurodollars an attractive savings instrument for consumers. D) the fact that Eurodollar deposits are heavily regulated.

B) the fact that dollars are widely used to conduct international transactions.

The most important developments that reduced banks' income advantages include A) the increase in off-balance sheet activities. B) the growth of securitization. C) the elimination of Regulation Q ceilings. D) the competition from money market mutual funds.

B) the growth of securitization.

The entry of AT&T and GM into the credit card business is an indication of A) government's efforts to deregulate the provision of financial services. B) the rising profitability of credit card operations. C) the reduction in costs of credit card operations since 1990. D) the sale of unprofitable operations by Bank of America and Citicorp.

B) the rising profitability of credit card operations.

A major controversy involving the banking industry in its early years was A) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions. B) whether the federal government or the states should charter banks. C) what percent of deposits banks should hold as fractional reserves. D) whether banks should be allowed to issue their own bank notes.

B) whether the federal government or the states should charter banks.

The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as the A) National Bank Act of 1863. B) Federal Reserve Act of 1913. C) Glass-Steagall Act. D) McFadden Act.

C) Glass-Steagall Act.

An instrument developed to help investors and institutions hedge interest-rate risk is A) a debit card. B) a credit card. C) a financial derivative. D) a junk bond.

C) a financial derivative.

The agreement to provide a standardized commodity to a buyer on a specific date at a specific future price is A) a put option. B) a call option. C) a futures contract. D) a mortgage-backed security.

C) a futures contract.

Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, state banks were able to stay in business by A) issuing credit cards. B) ignoring the regulations. C) acquiring funds through deposits. D) branching into other states.

C) acquiring funds through deposits

Before 1863 A) federally-chartered banks had regulatory advantages not granted to state-chartered banks. B) the number of federally-chartered banks grew at a much faster rate than at any other time since the end of the Civil War. C) banks acquired funds by issuing banknotes. D) banks were required to maintain 100% of their deposits as reserves

C) banks acquired funds by issuing banknotes.

Adjustable rate mortgages A) protect households against higher mortgage payments when interest rates rise. B) keep financial institutions' earnings high even when interest rates are falling. C) benefit homeowners when interest rates are falling. D) generally have higher initial interest rates than on conventional fixed-rate mortgages.

C) benefit homeowners when interest rates are falling.

The process in which people seeking higher yielding securities take their funds out of the banking system thus restricting the amount of funds banks can lend is called A) capital mobility. B) loophole mining. C) disintermediation. D) deposit jumping.

C) disintermediation.

Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side. A) federal government; municipalities B) state governments; municipalities C) federal government; states D) municipalities; states

C) federal government; states

Bank consolidation will likely result in A) less competition. B) the elimination of community banks. C) increased competition. D) a shift in assets from larger banks to smaller banks.

C) increased competition.

Under the Gramm-Leach-Bliley Act states retain regulatory authority over A) bank holding companies. B) securities activities. C) insurance activities. D) bank subsidiaries engaged in securities underwriting.

C) insurance activities.

Uncertainty about interest-rate movements and returns is called A) market potential. B) interest-rate irregularities. C) interest-rate risk. D) financial creativity.

C) interest-rate risk.

The U.S. banking system is considered to be a dual system because A) banks offer both checking and savings accounts. B) it actually includes both banks and thrift institutions. C) it is regulated by both state and federal governments. D) it was established before the Civil War, requiring separate regulatory bodies for the North and South.

C) it is regulated by both state and federal governments.

The Federal Reserve Act of 1913 required that A) state banks be subject to the same regulations as national banks. B) national banks establish branches in the cities containing Federal Reserve banks. C) national banks join the Federal Reserve System. D) state banks could not join the Federal Reserve System.

C) national banks join the Federal Reserve System.

The presence of so many commercial banks in the United States is most likely the result of A) consumers' strong desire for dealing with only local banks. B) adverse selection and moral hazard problems that give local banks a competitive advantage over larger banks. C) prior regulations that restricted the ability of these financial institutions to open branches. D) consumers' preference for state banks.

C) prior regulations that restricted the ability of these financial institutions to open branches.

New computer technology has A) increased the cost of financial innovation. B) increased the demand for financial innovation. C) reduced the cost of financial innovation. D) reduced the demand for financial innovation.

C) reduced the cost of financial innovation.

According to Edward Kane, because the banking industry is one of the most ________ industries in America, it is an industry in which ________ is especially likely to occur. A) competitive; loophole mining B) competitive; innovation C) regulated; loophole mining D) regulated; innovation

C) regulated; loophole mining

Experts predict that the future structure of the U.S. banking industry will have A) an increased number of banks. B) as few as ten banks. C) several thousand banks. D) a few hundred banks.

C) several thousand banks.

Which regulatory body charters national banks? A) the Federal Reserve B) the FDIC C) the Comptroller of the Currency D) the U.S. Treasury

C) the Comptroller of the Currency

The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of A) the National Bank Charter Amendments of 1918. B) the Garn-St. Germain Act of 1982. C) the National Bank Act of 1863. D) Federal Reserve Act of 1913

C) the National Bank Act of 1863.

What country is given credit for the birth of the Eurodollar market? A) the United States B) England C) the Soviet Union D) Japan

C) the Soviet Union

The driving force behind the securitization of mortgages and automobile loans has been A) the rising regulatory constraints on substitute financial instruments. B) the desire of mortgage and auto lenders to exit this field of lending. C) the improvement in information technology. D) the relaxation of regulatory restrictions on credit card operations.

C) the improvement in information technology.

The declining cost of computer technology has made ________ a reality. A) brick and mortar banking B) commercial banking C) virtual banking D) investment banking

C) virtual banking

With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System ________ to purchase FDIC insurance for their depositors, while non-member commercial banks ________ to buy deposit insurance. A) could choose; were required B) could choose; were given the option C) were required, could choose D) were required; were required

C) were required, could choose

________ are the only depository institutions that are tax-exempt. A) Commercial banks B) Savings and loans C) Mutual savings banks D) Credit unions

D) Credit unions

________ is creating a marketable capital market instrument by bundling a portfolio of mortgage or auto loans. A) Diversification B) Arbitrage C) Computerization D) Securitization

D) Securitization

The primary reason for the recent reduction in the number of banks is A) bank failures. B) re-regulation of banking. C) restrictions on interstate branching. D) bank consolidation.

D) bank consolidation.

A financial innovation that developed as a result of banks avoidance of bank branching restrictions was A) money market mutual funds. B) commercial paper. C) junk bonds. D) bank holding companies.

D) bank holding companies.

A disadvantage of virtual banks (clicks) is that A) their hours are more limited than physical banks. B) they are less convenient than physical banks. C) they are more costly to operate than physical banks. D) customers worry about the security of on-line transactions

D) customers worry about the security of on-line transactions

The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as a A) bilateral regulatory system. B) tiered regulatory system. C) two-tiered regulatory system. D) dual banking system.

D) dual banking system.

Although it has a population about half that of the United States, Japan has A) many more banks. B) about 25 percent of the number of banks. C) more than 5000 commercial banks. D) fewer than 100 commercial banks.

D) fewer than 100 commercial banks.

Newly-issued high-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as A) municipal bonds. B) Yankee bonds. C) "fallen angels." D) junk bonds.

D) junk bonds.

The experience of disintermediation in the banking industry illustrates that A) more regulation of financial markets may avoid such problems in the future. B) banks are unable to remain competitive with other financial intermediaries. C) consumers no longer desire the services that banks provide. D) markets invent alternatives to costly regulations.

D) markets invent alternatives to costly regulations.

Lack of competition in the United States banking industry can be attributed to A) the fact that competition does not benefit consumers. B) the fact that branching has eliminated competition. C) recent legislation restricting competition. D) nineteenth-century populist sentiment.

D) nineteenth-century populist sentiment.

Bank customers perceive Internet-only banks as being A) more secure than physical bank branches. B) a better method for the purchase of long-term savings products. C) better at keeping customer information private. D) prone to many more technical problems.

D) prone to many more technical problems.

The business term for economies of scope is A) economies of scale. B) diversification. C) cooperation. D) synergies.

D) synergies.

The legislation that overturned the prohibition on interstate banking is A) the McFadden Act. B) the Gramm-Leach-Bliley Act. C) the Glass-Steagall Act. D) the Riegle-Neal Act.

D) the Riegle-Neal Act.

Prior to 2008, the bank's cost of holding reserves equaled A) the interest paid on deposits times the amount of reserves. B) the interest paid on deposits times the amount of deposits. C) the interest earned on loans times the amount of loans. D) the interest earned on loans times the amount on reserves.

D) the interest earned on loans times the amount on reserves.

As the banking system in the United States evolves, it is expected that A) the number and importance of small banks will increase. B) the number and importance of large banks will decrease. C) small banks will grow at the expense of large banks. D) the number and importance of large banks will increase.

D) the number and importance of large banks will increase.