Ch 18 Fin 361
Deposit insurance has a limit of:
250,000
____ is not a characteristics used by bank regulators to rate banks. a. Capital adequacy b. Current stock price c. Asset quality d. Management e. All of the above are used to rate banks.
Current stock price
Which banking act allowed for the creation of NOW accounts?
DIDMCA
Which banking act removed deposit rate ceilings?
DIDMCA
All Fed member banks must hold
FDIC insurance on deposits.
.Shareholders and managers of banks may prefer that banks be required to hold higher levels of capital because this would allow for higher share prices for the banks and larger bonuses for bank managers. a. True b. False
False
Commercial banks are allowed to invest in junk bonds. a. True b. False
False
Deposit insurance now covers all bank deposits without any limit.
False
During the credit crisis, banks argued that they should be allowed to use fair value accounting in valuing their assets for purposes of meeting capital requirements. a. True b. False
False
The Sarbanes-Oxley Act (2002) was enacted in response to some banks taking too much risk. a. True b. False
False
When a bank holds a lower level of capital, a given dollar level of profits represents a lower return on equity. a. True b. False
False
During the credit crisis, the U.S. government purchased the common stock of the largest banks in order to inject funds into the banks and cushion their losses. a. True b. False
False
Which banking act allowed banks to cross state lines in order to acquire a failing institution?
Garn-St Germain Act
Which banking act allowed interstate banking?
Reigle-Neal Interstate Banking and Branching Efficiency Act
. Regulators put much emphasis on a bank's sensitivity to interest rate movements, since many banks have liabilities that are repriced more frequently than their assets and are adversely affected by rising interest rates. a. True b. False
True
Publicly traded banks have incurred larger reporting expenses as a result of having to comply with the Sarbanes-Oxley Act. a. True b. False
True
The Sarbanes-Oxley Act (SOX) was enacted in 2002 in order to ensure a more transparent process for reporting on a firm's productivity and the financial condition. a. True b. False
True
The Sarbanes-Oxley Act was enacted to make corporate managers, board members, and auditors more accountable for the accuracy of the financial statements that their respective firms provide.
True
The Volcker Rule prohibits banks from sponsoring or holding an ownership interest in a hedge fund or a private equity fund. a. True b. False
True
The act of taking on more risk because of protection from adverse consequences due to the risk is referred to as a moral hazard problem. a. True b. False
True
The provision of a letter of credit by a bank to back commercial paper issued by a corporation is an example of an off-balance sheet commitment. a. True b. False
True
Bank regulations typically: a. involve a trade-off between the safety of the banking system and the efficiency of bank operations. b. impose restrictions on the types of assets in which banks can invest. c. set requirements for the minimum amount of capital that banks must hold. d. all of the above
all of the above
The Glass-Steagall Act of 1933 prevented
any firm that accepts deposits from underwriting stocks and bonds of corporations
In making loans to a single customer, commercial banks ____ restricted to a maximum percentage of their capital, and they ____ allowed to use borrowed or deposited funds to purchase common stock.
are; are not
Generally, the failure of small banks
causes less concern about the safety of the banking system than the failure of large banks
The key reason for regulatory examinations (such as CAMELS ratings) is to
detect problems of a bank in time to correct them
The argument that interstate banking would allow banks to grow and more fully achieve a reduction in operating costs per unit of output as output increases is based on
economies of scale
Which of the following is not a corrective action that regulators may take when a bank is identified as a problem bank?
examine the bank frequently and thoroughly
All state banks are required to be members of the Federal Reserve System. a. True b. False
false
Banks commonly use depositor funds to invest in stocks.
false
state banks are regulated by the Comptroller of the Currency. a. True b. False
false
The liquidity component of the CAMELS rating refers to
how a bank's earnings would change if economic conditions change
The Depository Institutions Deregulation and Monetary Control Act of 1980 allowed banks to set their own
interest rates on savings deposits
The Garn-St Germain Act of 1982
permitted depository institutions to offer money market deposit accounts
The opening of a commercial bank in the United States
requires a charter from a state or the federal government.
The Basel framework recommends that banks maintain capital in proportion to their:
risk-weighted assets
The potential risk that financial problems can spread through financial institutions and the financial system is referred to as ________ risk.
systemic
During the credit crisis, all of the following occurred except: a. some securities firms were allowed to become bank holding companies. b. the Federal Reserve rescued American International Group, an insurance company. c. the Treasury injected funds into financial institutions. d. the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank.
the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank.
Banks that are insured by the Federal Deposit Insurance Corporation (FDIC) are also regulated by the FDIC. a. True b. False
true
In general, a bank defines its value-at-risk as the estimated potential loss from its trading businesses that could result from adverse movements in market prices
true
The Reigle-Neal Interstate Banking and Branching Efficiency Act allowed banks to achieve economies of scale through nationwide interstate banking. a. True b. False
true
When the Federal Reserve conducts stress tests of banks, it may examine the U.S. operations of foreign-based banks as well as U.S. banks. a. True b. False
true
A federal bank charter is issued by the a. Comptroller of the Currency. b. Securities and Exchange Commission. c. U.S. Treasury. d. Federal Reserve. e. none of the above
Comptroller of the Currency
The ____ is the fund used to cover insured depositors. a. Deposit Insurance Fund b. Federal Deposit Insurance Corporation Fund c. Bank Depository Insurance Fund d. Financial Institution Insurance Fund e. none of the above
Deposit Insurance Fund
Which of the following statements is incorrect with respect to the Financial Services Modernization Act of 1999? a. It expanded the Glass-Steagall Act. b. It enabled commercial banks to more easily pursue securities and insurance activities. c. It allowed securities firms and insurance companies to acquire banks. d. It required commercial banks to have a strong rating in community lending in order to pursue additional expansion in securities and other nonbank activities. e. All of the above are true.
It expanded the Glass-Steagall Act
____ is not a rating criterion used by bank regulators. a. Capital adequacy b. Savings deposit volume c. Asset quality d. Management e. Liquidity
Savings deposit volume
The Financial Services Modernization Act of 1999 a. gave banks and other financial service firms less freedom to merge. b. allowed financial institutions to offer a diversified set of financial services. c. offered very few benefits to a financial institution's clients. d. increased the reliance of financial institutions on the demand for the single service they offer.
allowed financial institutions to offer a diversified set of financial services.
Which of the following was not achieved by the Depository Institutions Deregulation and Monetary Control Act of 1980?
allowed interstate banking for depository institutions in most states
The fee banks pay to the FDIC for deposit insurance is now
based on the risk of the bank
Which of the following is not a specific criterion that regulators use to monitor banks?
dollar value of fixed assets
The Basel III framework proposes: a. lower capital requirements for banks to enable them to generate higher earnings to make up for their losses during the credit crisis. b. relying on the rating agencies to assess the risk of bank assets. c. increased capital requirements and liquidity requirements for banks. d. using the gap ratio to set the capital ratio.
increased capital requirements and liquidity requirements for banks
Which of the following is an "off-balance-sheet commitment"?
letters of credit backing commercial paper issued by firms
The liquidity coverage ratio, which is measured under the Basel III guidelines, is the ratio of a bank's _________ to its ___________.
liquid assets; projected net cash outflow
Which of the following was not a provision of the Financial Reform Act (Dodd-Frank Act) of 2010? a. established the Financial Stability Oversight Council b. put limits on banks' proprietary trading c. established the Consumer Financial Protection Bureau d. reestablished the separation between banking and securities activities that had existed under the Glass-Steagall Act e. required derivative securities to be traded through a clearinghouse or exchange
required derivative securities to be traded through a clearinghouse or exchange
A bank can increase its capital ratio by: a. buying back shares of its stock from shareholders. b. selling assets. c. increasing its dividend to encourage more investors to purchase its stock. d. increasing its off-balance sheet activities.
selling assets
The moral hazard problem is minimized when deposit insurance premiums are a. zero (not imposed by the FDIC). b. the same percentage of deposits for all banks. c. set at a fixed percentage of deposits for large banks, and at zero for small banks. d. set at a percentage of deposits that is based on the bank's risk.
set at a percentage of deposits that is based on the bank's risk
The Financial Reform Act (Wall Street Reform and Consumer Protection Act or Dodd-Frank Act) of 2010: a. ended the system of risk-based insurance premiums. b. set requirements for the Deposit Insurance Fund's reserves. c. raised the limit for insured deposits to $750,000 per depositor. d. allowed large insurance companies such as American International Group to compete with the FDIC to insure bank deposits.
set requirements for the Deposit Insurance Fund's reserves
The Volcker rule, named for a former Fed chair: a. is intended to increase the powers of the Fed. b. states that the U.S. government will rescue certain large banks if necessary to reduce systemic risk in the financial system. c. sets limits on banks' proprietary trading. d. requires all banks to undergo annual stress tests.
sets limits on banks' proprietary trading
National banks are regulated by ____, and state banks are regulated by ____.
the Comptroller of the Currency; their state agency
Federal deposit insurance
was created after World War II
