MC Test 1 Chapters 1,2,3,5,6

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

The principal functions and services offered by many financial-service firms today include:

A. lending and investing money. B. making payments on behalf of customers to facilitate their purchases of goods and services. C. managing and protecting customers' cash and other property. D. assisting customers in raising and investing funds profitably. E. All of the above. (Answer)

Which of the following types of banks would most likely offer the largest number of financial services virtually?

A universal bank

Banks are regulated for which of the reasons listed below?

A. Banks are leading repositories of the public's savings. B. Banks have the power to create money. C. Banks provide businesses and individuals with loans that support consumption and investment spending. D.Banks assist governments in conducting economic policy, collecting taxes, and dispensing government payments. E. All of the options are correct. (answer)

Which of the following is one of the several advantages that bank holding company organizations have over other types of banking organizations?

A. Greater access to capital markets B. Tax advantage C. Product-line diversification D. Ability to use higher leverage E. All the options are correct

Which of the following is considered to be an advantage of branch banking?

A. Increased availability and convenience of services B. Decreased chance of failure C. Reduced transaction costs D. Decreased chance of failure and reduced transaction costs E. All the options are correct

Which of the following has been an important trend regarding consolidation and geographic expansion in banks?

A. Increased bank branching activity B. The formation of more holding companies to purchase smaller banks C. Mergers among some of the largest banks in the industry D. Significant rise in the average size of individual banks (E) All of the options are correct (Answer)

Which of the following is a reason that many states and the federal government finally enact interstate banking laws?

A. The need for new capital in order to revive struggling local economies B. The expansion of service offerings by nonbank financial institutions C. The belief among regulators that larger firms may be more efficient and stable D. Advances in technology which allowed banks to service customers in broader geographic areas E. All the options are reasons for the passage of interstate banking laws

The Financial Services Regulatory Relief Act of 2006:

A. adds selected new service powers to depository institutions. B. loosens regulations on depository institutions. C. grants the Federal Reserve authority to pay interest on depository institutions' legal reserves. D. All of the options are correct.

The Emergency Economic Stabilization Act passed in 2008 during the global credit crisis, allowed for:

A. an emergency sale of "bad assets". B. a temporary increase of FDIC deposit insurance to $250,000 for all deposits. C. injections of capital by the government into banks and other qualified lenders. D. a closer surveillance of the mortgage market participants, such as brokers and lenders. E. All of the options are correct.

The federal agency that regulates the most banks is the

Federal Deposit Insurance Corporation.

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

Federal Reserve

Noninterest revenue sources for a bank are called:

Fee income

The _________ allows adequately capitalized bank holding companies to acquire banks in any state.

Riegle-Neal Interstate Banking and Branching Efficiency Act

Which of the following is considered a depository financial institution?

Savings and Loan associations

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

Security Brokerage Firm

Majority of banks today are:

State chartered

_____ requires corporations controlling two or more banks to register with the Federal Reserve Board and seek approval for any new business acquisitions.

The Bank Holding Company Act

Which federal banking act extends deposit insurance coverage on qualified retirement accounts from $100,000 to $250,000 and authorizes the FDIC to periodically increase deposit insurance coverage to keep up with inflation?

The Federal Deposit Insurance Reform Act

Which federal banking act prohibits publishing false or misleading information about the financial performance of a public company and requires top corporate officers to vouch for the accuracy of their company's financial statements?

The Sarbanes-Oxley Act

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

The Edmond Wine and Cheese shop wants to buy 30 cases of French Champagne on credit. Bank of America writes a letter of credit stating that the Edmond Wine and Cheese shop is a good risk and that if they do not pay off the loan, Bank of America will. Which of the following roles is the bank performing?

The guarantor role

Which of the following is not a current trend in the banking industry?

The number of bank branches is declining

Which of the following financial statements shows the revenues and expenses of a bank over a set period of time?

The report of income

Alexander Phua goes to his local bank and gets an insurance policy that protects him against loss in case he is in a car accident. Which of the following roles is the bank performing?

The risk management role

Jonathan Robbins has an account in a bank that does not have a physical branch. Jonathan does all of his banking business over the Internet. What type of bank does Jonathan have his account at?

Virtual Bank

A bank which manages the investment portfolio and pays the bills of an elderly customer who is unable to do it for him or herself is carrying out the __________ of banks.

agency role

A financial institution's bad-debt reserve, as reported on its balance sheet, is called

allowance for possible loan losses

The account that is built up by annual noncash expense deductions and is subtracted from Gross Loans on the Report of Condition is:

allowance for possible loan losses

A 'typical' community bank is committed to:

attracting deposits from large companies

Senior management of a community bank reports periodically to the:

board of directors

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

charter of incorporation

In the United States, a commercial bank qualifies as a "bank" under federal law if it offers:

checking accounts, commercial loans.

A bank sells shares of its common stock with a par value of $100 for $200 in the market. Which two accounts on the bank's balance sheet are going to be affected?

common stock outstanding and surplus accounts

Smaller, locally focused commercial and savings banks that offer narrower but more personalized menu of financial services are known as:

community banks.

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

complex

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

continuous formation of new banks

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

convergence

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

declined; increased

Which of the following reasons leads to an implication that traditional banking is dying?

degradation of market share

Each of the following falls into the category of bank assets except:

demand deposits.

A bank's temporary lending of excess reserves to other banks is labeled on the balance sheet as:

fed funds sold

Banks depend heavily upon borrowed funds supplied by customers with little owners' capital invested. This means that banks make heavy use of:

financial leverage

The phenomenon of convergence refers to:

financial service firms expanding into other product lines.

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

globalization

A typical branch banking organization:

has partial decentralization of authority.

The fastest growing financial crime in the U.S. is:

identity theft.

The Federal Reserve buys Treasury Bills in the open market. This will tend to:

increase the available for use funds with banks and dealers involved in the transaction.

Banks perform the indispensable task of

intermediating between surplus-spending parties and deficit-spending parties.

The banking services that include marketing new securities to raise funds for corporations and other institutions is referred to:

investment banking.

An example of a contra-asset account is

loan and lease loss allowance

Banks generate their largest portion of income from:

loans.

Member banks are:

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

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

multi-bank holding company.

Each of the following typically falls into the category of loans except:

municipal

Sears provided are among leading firms that in the 1980s organized competitors with banks that are known as:

nonbank financial-service institutions.

One-time-only transactions that often involve sale of financial assets or real property pledged as collateral behind a loan and upon which the bank has foreclosed, affect a bank's account known as:

nonrecurring sales of assets

The use of fixed assets, rather than financial assets, in order to increase the operating earnings is known as:

operating leverage

A bank that wires funds for the purchase of a beach house in South Carolina for a customer in Oklahoma is carrying out the __________ of banks.

payment role

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,

perfectly positive correlation

During the financial crisis of 2007-2009, the collapse of Lehman Brothers and the bailout of Bear Stearns reaffirmed the importance of the fundamental principle of

public trust and confidence in the system.

Major trends affecting the performance of financial firms today include all of these except:

reduced branching.

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

retail bank

Wholesale banks are those banks that:

serve corporations and government.

Large U.S. banks must use which of the methods listed below to determine their provision for loan loss expense?

specific charge-off method

The federal law that prohibited federally supervised commercial banks from offering investment banking services on privately issued securities is known as

the Bank Merger Act

The law which lifted government deposit interest ceilings in favor of competitive interest rates is:

the Depository Institutions Deregulation and Monetary Control Act.

The act that allowed bank holding companies to acquire nonbank depository institutions and convert them to branches is:

the Financial Institutions Reform, Recovery and Enforcement Act.

The law that made bank and nonbank depository institutions more alike in the services they could offer and allowed banks and thrifts to more fully compete with other financial institutions is:

the Garn-St Germain Depository Institutions Act.

The law that allows banks to affiliate with insurance companies and securities firms to form financial services conglomerates is:

the Gramm-Leach-Bliley Act (Financial Services Modernization Act).

The 1994 law that allowed bank holding companies to acquire banks anywhere in the U.S. is:

the Riegle-Neal Interstate Banking and Branching Efficiency Act.

Which federal banking act requires that financial service providers establish the identity of customers opening new accounts?

the USA Patriot Act

The act which requires financial institutions to share information about customer identities with government agencies is:

the USA Patriot Act.

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

traveler's checks.

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

unit banks

According to the textbook, large banks possess some potential advantages over small and medium-size banks. Which of the following is not such an advantage?

Better positioned to take advantage of the opportunities afforded by interstate banking

A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $0.94 million during the year, recovers $0.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses, will have an ALL at the end of the year of:

$1.67 Million (1.48+.12+1.02)-.94 = 1.68

A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net interest income?

$32 (67-35)= 32

Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than:

90 days

Included among leading structural trends in the U.S. banking industry in recent years are:

A. the number of independently owned banks has declined. B. the average size of individual banking firms has increased. C. entry across state lines from neighboring states has increased. D. the mergers among some of the largest banks in the industry. E. All of the options are correct. (answer)

When a loan is considered uncollectible, the bank's accounting department will write (charge) it off the books by reducing the ______ and the ______ accounts. Which choice below correctly fills in the blanks in the preceding sentence?

ALL, gross loans

Of the principal reasons for regulating banks, what was the primary purpose of the National Banking Act (1863)?

Chartering new banks and examining existing ones

The Edmond National Bank serves only the City of Edmond, Oklahoma and concentrates on providing the best possible service to this city. What type of bank is this most likely to be?

Community Bank

Of the principal reasons for regulating banks, what was the primary purpose of the Federal Reserve Act of 1913?

Control of the money supply

Of the principal reasons for regulating banks, what was the primary purpose of the Consumer Credit Protection Act?

Ensure that customers are aware of their rights and responsibilities under a loan agreement

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

Exodus of population from cities to suburban areas

Which of the following is not a purpose of bank regulation?

Guarantee minimal profitability of the banking system

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

Increased

Examples of imperfections in the financial system which allow banks to exist include which of the following?

Informational asymmetry

What is a bank holding company?

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

Banks with _______ in assets are generally called community banks.

Less than $1 billion

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

Montana

The Charleston Southern Bank makes loans for families to purchase new and existing homes but does not take deposits. What type of bank is this most likely to be?

Mortgage Bank

The law that set up the federal banking system and provided for the chartering of national banks was the:

National Bank Act.

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

National, member

___________ is calculated by deducting noninterest expense and provision for loan losses from noninterest income.

Net noninterest income

The oldest federal bank agency is the:

Office of the Comptroller of the Currency.

Which of the following has become the principal tool of central bank monetary policy today?

Open market operations

Which of the following is considered a fringe bank?

Payday Lender

The common banking practice of selling those investment securities that have appreciated in order to reap a capital gain and holding onto those securities whose prices have declined is known as:

Performance banking