This Document Contains Chapters 1 to 2 Chapter 1 An Overview of the Changing Financial-Services Sector Fill in the Blank Questions 1. _________ is a traditional service provided by banks in which the banks store the valuables of their customers and certify their true value. Answer: Safekeeping of valuables 2. The fact that financial institutions make loans based on confidential information is the _________ theory of banking. Answer: delegated monitoring 3. _________ refers to when a financial institution trades one form of currency for another. An example of this would be when the bank trades dollars for yen for a fee. Answer: currency exchange 4. A(n) _________ is a traditional service which permits a depositor to write a draft in payment for goods and services. Answer: demand deposit (checking account) 5. _________ is a service provided by banks where the bank lends money to individuals for the purchase of durable and other goods. Answer: Consumer lending 6. The _________ of a bank is a traditional service where the bank manages the financial affairs and property of individuals (and in some cases businesses). Answer: trust services 7. Companies such as Merrill Lynch and Sears which offered some but not all banking services in the 1980s were called _________. Answer: nonbank banks 8. The loosening of government regulation and control of financial institutions is called _________. Answer: deregulation 9. _________ is an alternative to lending in which the financial institution purchases the equipment and rents it to its customers. Answer: Equipment leasing services 10. The _________ is a landmark act which allows financial service providers to offer an expanded menu of financial services for the customer. This law allows banks to truly become conglomerate financial service providers. Answer: Financial Services Modernization Act (Gramm-Leach-Bliley Act) 11. The country with the most banks is _________. Answer: United States 12. According to Congress a _________ is defined as any institution that can qualify for deposit insurance administered by the FDIC. Answer: Bank 13. A bank which spans regions, nations, and continents, offering the widest menu of financial services is known as a __________ bank. Answer: money-center bank 14. _____________ refers to the movement of businesses across industry lines in order to broaden its base. Answer: Convergence 15. Banks which serve primarily households and small firms are known as _________ banks. Answer: retail 16. Banks that sell deposits and make loans to businesses and individuals are known as __________ banks. Answer: commercial 17. Banks which underwrite issues of new securities for their corporate customers are known as ________ banks. Answer: investment 18. Banks which function under a federal charter through the Comptroller of the Currency in the United States are known as _________ banks. Answer: National 19. Banks which supply both debt and equity capital to businesses are known as _________ banks. Answer: merchant 20. A bank that offers its services only over the internet is known as a(n) _________. Answer: virtual bank 21. When a local merchant sells the accounts receivables they hold against their customer to a bank this generally known as _________. Answer: discounting commercial notes 22. A(n) _________ offers loans to commercial enterprises (such as appliance dealers) or to individuals using funds borrowed in the open market or from other financial institutions. Examples of this type of financial service provider include GMAC Financial Services and Household Finance. Answer: finance company 23. A(n) _________ buys and sells securities on behalf of their customers and for their own accounts. Examples of this type of financial service provider include Merrill Lynch and Charles Schwab. Answer: security broker (or dealer) 24. A(n) _________ sells shares mainly to upscale investors in a broad group of different kinds of assets including nontraditional investments in commodities, real estate, loans to ailing companies and other risky assets. Answer: hedge fund 25. When a bank agrees to handle the cash collections and disbursements for a company and invest any temporary cash surpluses in interest bearing assets, they are providing _________ services to their customers. Answer: cash management True/False Questions 26. Under U.S. federal law, an institution making only loans to households and offering uninsured checkable deposits and savings deposits qualifies as a commercial bank. Answer: False 27. Nonbank banks can offer deposits to the public, but these deposits are not eligible for insurance coverage by the FDIC. Answer: False 28. The etymological roots of the word "bank" trace this word back to an Italian term referring to a "money-changer's table". Answer: True 29. According to the textbook, banks are those financial institutions that today offer the widest range of financial services of any business firm in the economy. Answer: True 30. According to the delegated monitoring theory banks are able to attract borrowing customers because they pledge confidentiality. Answer: True 31. Managing the financial affairs and property of individuals and business firms falls under the type of banking service line known as cash management services. Answer: False 32. The role performed by banks in the economy in which they transform savings into credit is known as the intermediation role. Answer: True 33. The role performed by banks in which they stand behind their customers when those customers are unable to pay a debt obligation is known as the guarantor role. Answer: True 34. When banks serve as conduits for government policy this is referred to as their agency role. Answer: False 35. According to the textbook, high-volume banking is required to make efficient use of automation and other technological innovations. Answer: True 36. The number of independently owned banks has risen in the United States over the last decade. Answer: False 37. Money-center banks usually service local communities, towns, and cities, offering a narrow menu of services to the public. Answer: False 38. A greater proportion of major corporations have deserted the banking system in recent years to raise borrowed funds directly from the open market. Answer: True 39. The recent erosion of the banking market share relative to other financial institutions means that banking is a dying industry. Answer: False 40. Lending institutions act as delegated monitors and can diversify and reduce their risk exposure, resulting in increased safety for savers’ funds. Answer: True 41. Current theory suggests that banks exist because of imperfections in our financial system. Answer: True 42. Today U.S. banks account for approximately fifty percent of the largest banks in the world. Answer: False 43. According to the textbook, traditional banking may be on the decline. Answer: True 44. Convergence refers to the fact that the number of bank mergers has increased in recent years. Answer: False 45. Banks which offer virtually all financial services are known as universal banks. Answer: True 46. Life insurance companies, securities firms, and mortgage companies all compete with the traditional bank. Answer: True Multiple Choice Questions 47. In the United States a commercial bank qualifies as a "bank" under federal law if it offers: A) Consumer installment loans, CDs B) Savings deposits, commercial loans C) Checking accounts, commercial loans D) Security investments, inventory loans to business customers E) Commercial deposit accounts, consumer savings plans Answer: C 48. E. F. Hutton, J.C. Penney, and Sears Roebuck are among leading firms that in the1980’s organized competitors with banks that are known as: A) Nonbank Banks B) Discount Security Brokerage Companies C) Money Market Funds D) Finance Companies E) Investment Banking Units Answer: A 49. A study of history shows that one of the first services offered by banks was: A) Equipment Leasing B) Currency Exchange C) Security Brokerage and Underwriting D) Sale of Real Estate E) None of the above Answer: B 50. Banks perform the indispensable task of: A) Creating money without making loan. B) Absorbing the excess liquidity created by other financial institutions C) Intermediating between surplus-spending individuals or institutions and deficit-spending individuals or institutions D) Issuing risky deposits E) None of the above Answer: C 51. The view that depositors hire banks to analyze the financial condition of prospective borrowers and continually evaluate the condition of outstanding loans is referred to as: A) Delegated monitoring B) The concept of financial intermediation C) The liquidity function in banking D) Market imperfection theory E) The efficiency contribution of banking Answer: A 52. 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) A and C above E) All of the above. Answer: E 53. 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) A and B only E) All of the above. Answer: E 54. Smaller, locally focused commercial and savings banks that offer narrower but more personalized menu of financial services are known as: A) Money center banks B) Community banks C) Mutual Funds D) State banks E) Fringe banks. Answer: B 55. The banking services that includes executing buy and sell orders for security trading customers and marketing new securities to raise funds for corporations and other institutions is referred to: A) Comprehensive Packaging B) Wrap-around Accounts C) Investment Banking D) Professional Banking E) None of the above. Answer: C 56. 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. A) The intermediation role B) The payment role C) The guarantor role D) The agency role E) The policy role Answer: B 57. Examples of imperfections in the financial system which allow banks to exist include which of the following? A) Informational asymmetry B) Efficiency of markets C) All individuals and businesses have full information about all investment opportunities. D) All individuals and businesses have no difficulty meeting their liquidity needs on their own. E) All of the above are examples of the imperfections that exist. Answer: A 58. 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. A) The intermediation role B) The payment role C) The guarantor role D) The agency role E) The policy role Answer: D 59. Which of the following is a trend that has affected all banks today? A) Increased isolation of banks in the U.S. B) Decreased competition from other financial institutions C) Decreased amount of services provided by modern banks D) Rising funding costs E) Increased regulations Answer: D 60. Which of the following is not a current trend in the banking industry? A) The number of banks is declining B) The number of bank branches is declining C) The number of bank services is increasing D) The number of bank competitors is increasing E) Bank industry convergence Answer: B 61. Which of the following types of banks would most likely offer the largest number of financial services? A) A retail bank B) A community bank C) A commercial bank D) A universal bank E) An international bank Answer: D 62. The phenomenon of convergence refers to: A) Financial service firms expanding into other product lines B) Firms reducing their product lines C) Bank merger activity D) Globalization in banking E) Technological innovation in banking Answer: A 63. Bank equipment leasing activity involves: A) A bank leasing its office facilities instead of buying B) A bank buying equipment and then leasing the item to a customer C) A customer buying equipment and then leasing it to a bank D) A bank leasing computer equipment E) None of the above Answer: B 64. Wholesale banks are those banks that: A) Sell at a discount relative to all commercial banks B) Only make loans to the wholesale industry C) Lend almost exclusively to farmers D) Are large banks which serve corporations and government E) Have only retail customers Answer: D 65. 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? A) Virtual Bank B) Mortgage Bank C) Community Bank D) Affiliated Bank E) None of the above Answer: A 66. 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? A) Virtual Bank B) Mortgage Bank C) Community Bank D) Affiliated Bank E) None of the above Answer: C 67. 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? A) Virtual Bank B) Mortgage Bank C) Community Bank D) Affiliated Bank E) None of the above Answer: B 68. Which of the following is considered a fringe bank? A) Community Bank B) Wholesale Bank C) Merchant Bank D) Payday Lender E) None of the above Answer: D 69. During the middle ages, banks encountered religious opposition because: A) Loans to the poor often carried high interest rates B) Loans and deposits were primarily for wealthy customers C) The Industrial Revolution demanded new methods of making payments and obtaining credit D) Savings and wealth were lost due to war, theft and expropriation by governments E) All of the above Answer: A 70. Religious opposition decreased during the Renaissance because: A) Loans to the poor often carried high interest rates B) Loans and deposits were primarily for wealthy customers C) The Industrial Revolution demanded new methods of making payments and obtaining credit D) Savings and wealth were lost due to war, theft and expropriation by governments E) All of the above Answer: B 71. Banks like the Medici Bank in Italy and the Hochstetter Bank in Germany were successful because _________ and they responded well to these new needs. A) Loans to the poor often carried high interest rates B) Loans and deposits were primarily for wealthy customers C) The Industrial Revolution demanded new methods of making payments and obtaining credit D) Savings and wealth were lost due to war, theft and expropriation by governments E) All of the above Answer: C 72. Early European banks were places for safekeeping of wealth because: A) Loans to the poor often carried high interest rates B) Loans and deposits were primarily for wealthy customers C) The industrial revolution demanded new methods of making payments and obtaining credit D) Savings and wealth were lost due to war, theft and expropriation by governments E) All of the above Answer: D 73. The U.S. government wants to prevent money laundering by drug cartels. To promote this goal, they have asked banks to report any cash deposits greater than $10,000 to the government. Which of the following roles is the bank performing? A) The intermediation role B) The payment role C) The risk management role D) The guarantor role E) The policy role Answer: E 74. 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? A) The intermediation role B) The payment role C) The risk management role D) The guarantor role E) The policy role Answer: D 75. 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? A) The intermediation role B) The payment role C) The risk management role D) The guarantor role E) The policy role Answer: C 76. Chris Jones gets a cashier’s check from Wachovia Bank to make his down payment on a new home. Which of the following roles is the bank performing? A) The intermediation role B) The payment role C) The risk management role D) The guarantor role E) The policy role Answer: B 77. The Bank, N.A. accepts deposits from thousands of individuals and lends that money to (among others) the Stillwater Body Shop to expand their work bays. Which of the following roles is the bank performing? A) The intermediation role B) The payment role C) The risk management role D) The guarantor role E) The policy role Answer: A 78. Major trends affecting the performance of financial firms today include all of these except: A) Greater product-line diversification B) Reduced branching C) Geographic diversification D) Convergence E) Increasing automation Answer: B 79. The First National Bank of Lakeland makes risky loans to business to expand and grow their businesses while at the same time accepting funds into checking accounts that are insured by the FDIC. Which of the following services is this bank offering to their customers? A) Risky arbitrage services B) Liquidity services C) Ability of the bank to evaluate information D) Divisibility of money services E) Credit services Answer: A 80. Jonathan Wynn knows that if he wanted to purchase a Treasury Bill, the minimum amount he would spend would be close to $10,000. He also knows that he could deposit $1,000 in a money market deposit account at a bank and earn about the same rate of interest. Jonathan does not have $10,000 to invest in a Treasury Bill. If Jonathan puts his money in the bank, which service that a bank can provide is he taking advantage of? A) Risky arbitrage services B) Liquidity services C) Ability of the bank to evaluate information D) Divisibility of money services E) Credit services Answer: D 81. Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new refrigerator for his condo. What service that a bank provides is he taking advantage of? A) Risky arbitrage services B) Liquidity services C) Ability of a bank to evaluate information D) Divisibility of money services E) Credit services Answer: E 82. Drew Davis goes to his local bank to get help developing a financial plan and making investment decisions. Which of the more recent services banks offer is Drew taking advantage of? A) Getting a consumer loan B) Getting financial advice C) Managing cash D) Getting venture capital services E) Buying a retirement plan Answer: B 83. The Bartholemew Bakery receives a lot of payments in cash. They deposit it in their local bank who invests the money in an interest bearing account until it is needed to pay bills. Which of the financial services banks offer is the Bartholemew bakery taking advantage of? A) Getting a consumer loan B) Getting financial advice C) Managing cash D) Getting venture capital services E) Buying a retirement plan Answer: C 84. My Webcast is a new company that makes it easy for individuals to create streaming videos on the internet to share with friends and family for a small fee. My Webcast wants to expand their offerings of video streaming services but needs cash to be able to do this. The Second National Bank of Oklahoma City, through a subsidiary, gives them the cash they need for an ownership share in the company. Which of the more recent services that banks offer is My Webcast taking advantage of? A) Getting a consumer loan B) Getting financial advice C) Managing cash D) Getting venture capital services E) Buying a retirement plan Answer: D 85. Chandriga Suppiah has opened a Roth IRA with North Carolina State Bank and plans on making regular contributions to this account until she retires. Which of the financial services is Chandriga taking advantage of? A) Getting a consumer loan B) Getting financial advice C) Managing cash D) Getting venture capital services E) Buying a retirement plan Answer: E 86. Banks with less than ___________ in assets are generally called community banks. A) More than $1 billion B) Less than $1 billion C) More than $10 billion D) Less than $1 trillion E) More than $1 trillion Answer: B 87. The principal functions and services offered by many financial-service firms today include: A) Lending and investing money B) Making payments of 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: E 88. Which of the following is considered a depository financial institution? A) Mortgage company B) Mutual fund C) Savings and Loan associations D) Federal Reserve E) Insurance company Answer: C 89. 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 competitive financial system E) Protect consumers from abuses by banks Answer: A 90. 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: A) Superior management B) Globalization C) Government bailout D) Regulatory arbitrage E) Public trust and confidence in the system Answer: E Chapter 2 The Impact of Government Policy and Regulation on the Financial-Services Industry Fill in the Blank Questions 1. The _________ was created as part of the Glass Steagall Act. In the beginning it insured deposits up to $2,500. Answer: FDIC 2. The _________ is the law that states that a bank must get approved from their regulatory body in order to combine with another bank. Answer: Bank Merger Act 3. One tool that the Federal Reserve uses to control the money supply is _________. The Federal Reserve will buy and sell T-bills when they are using this tool of monetary policy. Answer: open market operations 4. The _________ was created in 1913 in response to a series of economic depressions and failures. Its principal role is to serve as the lender of last resort and to stabilize the financial markets. Answer: Federal Reserve 5. The _________ prevented banks from crossing state lines and made national banks subject to the branching laws of their state. This act was later repealed by the Riegle Neal Interstate Banking law. Answer: McFadden-Pepper Act 6. Because the FDIC levies fixed insurance premiums regardless of risk, this leads to a problem called the _________ among banks. The fixed premiums encourage all banks to accept greater risk. Answer: moral hazard 7. In 1980, _________ was passed and lifted government ceilings on deposit interest rates in favor of free market interest rates. Answer: DIDMCA 8. One tool that the Federal Reserve uses to control the money supply is _________. The Federal Reserve will change the interest rate they charge for short term loans when they are using this tool of monetary policy. Answer: changing the discount rate 9. The first major federal banking law in the U.S. was the _________. This law was passed during the Civil War and set up a system for chartering national banks and created the OCC. Answer: National Banking Act 10. The _________ was passed during the Great Depression. It separated investment and commercial banks and created the FDIC. Answer: Glass-Steagall Act 11. The _________ brought bank holding companies under the jurisdiction of the Federal Reserve. Answer: Bank Holding Company Act 12. The _________ allows bank holding companies to acquire banks anywhere in the United States. However, no one bank can control more than 30 percent of the deposits in any one state or more than 10 percent of the deposits across the country. Answer: Riegle-Neal Interstate Banking Act 13. The _________ allows banks to affiliate with insurance companies and securities firms either through a holding company or as a subsidiary. Answer: Gramm-Leach-Bliley Act (Financial Services Modernization Act) 14. Customers of financial-service companies may _________ of having their private information shared with a third party such as a telemarketer. However, in order to do this they must tell the financial-services company in writing that they do not want their personal information shared with outside parties. Answer: opt out 15. The federal bank regulatory agency which examines the most banks is the _________. Answer: FDIC 16. The _________ requires financial service companies to report suspicious activity in customer accounts to the Treasury Department. Answer: U.S. Patriot Act 17. The central bank of the new European Union is known as the _________. Answer: European Central Bank or ECB 18. The _________ Act prohibits banks and other publicly owned firms from publishing false or misleading financial performance information. Answer: Sarbanes-Oxley 19. One of the main roles of the Federal Reserve today is _________. They have three tools that they use today to carry out this role; open market operations, the discount rate and legal reserve requirements. Answer: monetary policy 20. The _________ is the center of authority and decision making within the Federal Reserve. It consists of seven members appointed by the president for terms not exceeding 14 years. Answer: Board of Governors 21. The main regulators of insurance companies are _________. Answer: state insurance commissions 22. Federal Credit Unions are regulated and examined by _________. Answer: the National Credit Union Administration. 23. The _________ makes it easier for victims of identity theft to file fraud alerts and allows the public to apply for a free credit report once a year. Answer: Fair and Accurate Credit Transactions Act (FACT Act) 24. The _________ makes it faster and less costly for banks to clear checks. It allows for banks to electronically send check images instead of shipping paper checks across the country. Answer: Check 21 Act 25. The _________ was created by the National Banking Act and is part of the Treasury Department. It is the primary regulator of National Banks. Answer: Office of the Comptroller of the Currency (OCC) 26. The _________ proposes various regulations applying to the financial markets to combat the recent credit crisis. This “bail-out” bill granted the US Treasury the means to purchase troubled loans, allowed the FDIC to temporarily increase deposit insurance, and permitted the government to inject additional capital into the banking system. Answer: The Emergency Economic Stabilization Act of 2008 True/False Questions 27. Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation. Answer: False 28. In the United States, fixed fees charged for deposit insurance, regardless of how risky a bank is, led to a problem known as moral hazard. Answer: True 28a. Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk. Answer: False 29. The Federal Reserve changes reserve requirements frequently because the affect of these changes is so small. Answer: False 30. The Bank Merger Act and its amendments requires that Bank Holding Companies be under the jurisdiction of the Federal Reserve. Answer: False 31. National banks cannot merge without the prior approval of the Comptroller of the Currency. Answer: True 32. The Truth in Lending (or Consumer Credit Protection) Act was passed by the U.S. Congress to outlaw discrimination in providing bank services to the public. Answer: False 33. The federal law that states individuals and families cannot be denied a loan merely because of their age, sex, race, national origin or religious affiliation is known as the Competitive Equality in Banking Act. Answer: False 34. Under the terms of the 1994 Riegle-Neal Interstate Banking law bank holding companies can acquire a bank anywhere inside the United States, subject to Federal Reserve Board approval. Answer: True 35. The 1994 federal interstate banking bill does not limit the percentage of statewide or nationwide deposits that an interstate banking firm is allowed to control. Answer: False 36. The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central government and local governments regulate banks. Answer: False 37. The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks and causes banks to accept greater risk. Answer: True 38. When the Federal Reserve buys T-bills through its open market operations, it causes the growth of bank deposits and loans to decrease. Answer: False 39. When the Federal Reserve increases the discount rate it generally causes other interest rates to decrease. Answer: False 40. The National Bank Act (1863) created the Federal Reserve which acts as the lender of last resort. Answer: False 41. FIRREA (1989) allowed bank holding companies to acquire nonblank depository institutions and, if desired, convert them into branch offices. Answer: True 42. The Sarbanes-Oxley Act allows banks, insurance companies, and securities firms to form Financial Holding Companies (FHCs). Answer: False 43. The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s. Answer: True 44. Passed in 1977, the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live. Answer: False 45. The tool used by the Federal Reserve System to influence the economy and behavior of banks is known as moral hazard. Answer: False 46. One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system. Answer: True Multiple Choice Questions 47. 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 above. Answer: E 48. An institutional arrangement in which federal and state authorities both have significant bank regulatory powers is referred to as: A) Balance of Power B) Federalism C) Dual Banking System D) Cooperative Regulation E) Coordinated Control Answer: C 49. The law that set up the federal banking system and provided for the chartering of national banks was the: A) National Bank Act B) McFadden-Pepper Act C) Glass-Steagall Act D) Bank Merger Act E) Federal Reserve Act Answer: A 50. The federal law that prohibited federally supervised commercial banks from offering investment banking services on privately issued securities is known as: A) The Glass-Steagall Act B) The Bank Merger Act C) The Depository Institutions Deregulation and Monetary Control Act D) The Federal Reserve Act E) None of the Above Answer: A 51. The Gramm-Leach-Bliley Act (Financial Services Modernization Act) calls for linking government supervision of the financial-services firm to the types of activities that the firm undertakes. For example the insurance portion of the firm would be regulated by state insurance commissions and the banking portion of the firm would be regulated by banking regulators. This approach to government supervision of financial services is known as: A) Consolidated regulation and supervision. B) Functional regulation. C) Services oversight. D) Umbrella supervision and regulation. E) None of the above. Answer: B 52. The Federal Reserve policy tool under which the Fed attempts to bring psychological pressure to bear on individuals and institutions to conform to the Fed's policies, using letters, phone calls, and speeches, is known as: A) Margin requirements B) Moral suasion C) Discount window supervision D) Conference and compromise E) None of the above. Answer: B 53. The 1994 law that allowed bank holding companies to acquire banks anywhere in the U.S. is: A) The Glass-Steagall Act B) The Federal Deposit Insurance Corporation Improvement Act C) The National Bank Act D) The Riegle-Neal Interstate Banking and Branching Efficiency Act. E) None of the above. Answer: D 54. The federal law that allowed the Federal Reserve to set margin requirements is: A) The National Banking Act. B) The McFadden-Pepper Act. C) The Glass Steagall Act. D) The Federal Reserve Act. E) None of the above. Answer: C 55. Of the principal reasons for regulating banks, what was the primary purpose of the National Banking Act (1863)? A) Protection of the public's savings B) Control of the money supply C) Providing support for government activities D) Maintaining confidence in the banking system E) Preventing banks from realizing monopoly powers Answer: C 56. Of the principal reasons for regulating banks, what was the primary purpose of the Federal Reserve Act of 1913? A) Protection of the public's savings B) Control of the money supply C) Preventing banks from realizing monopoly powers D) Ensuring an adequate and fair supply of loans E) None of the above. Answer: B 57. The law that allows lifted government deposit interest ceilings and allowed them to pay a competitive interest rate is: A) The National Banking Act. B) The Glass Steagall Act. C) The Bank Merger Act. D) DIDMCA E) None of the above. Answer: D 58. The law that allows banks to affiliate with insurance companies and security brokerage firms to form financial services conglomerates is A) The National Banking Act B) The Glass Steagall Act C) The Garn St. Germain Act D) The Riegle Neal Interstate Banking Act E) The Gramm-Leach-Bliley Act (Financial Services Modernization Act) Answer: E 59. Of the principal reasons for regulating banks, what was the primary purpose of the Truth in Lending Law? A) Protection of the public's savings B) Control of the money supply C) Preventing banks from realizing monopoly powers D) Ensuring an adequate and fair supply of loans E) None of the above. Answer: D 60. Which of the following is an unresolved issue in the new century? A) What should be done about the regulatory safety net set up to protect small depositors? B) If financial institutions are allowed to take on more risk, how can taxpayers be protected from paying the bill when more institutions fail? C) Does functional regulation actually work? D) Should regulators allow the mixing of banking and commerce? E) All of the above are unresolved issues Answer: E 61. 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: A) The National Banking Act B) The Federal Reserve Act C) The Garn-St. Germain Act D) The Riegle-Neal Interstate Banking and Branching Efficiency Act E) The Gramm-Leach-Bliley Act (Financial Services Modernization Act) Answer: C 62. The law that allowed bank holding companies to acquire nonbank depository institutions and convert them to branches is: A) The National Banking Act B) The Garn-St. Germain Act C) FIRREA D) The Riegle-Neal Interstate Banking and Branching Efficiency Act E) None of the Above Answer: C 63. The equivalent of the Federal Reserve System in Europe is known as the: A) European Union B) Bank of London C) Basle Group D) European Central Bank E) Swiss Bank Corporation Answer: D 64. The new financial organization created by Gramm-Leach-Bliley is the A) Financial Holding Company B) Bank Holding Company C) European Central Bank D) Financial Service Corporation E) Financial Modernization Organization Answer: A 65. The act which requires financial institutions to share information about customer identities with government agencies is: A) The Sarbanes-Oxley Act B) The U.S. Treasury Department Act C) The 9/11 Act D) The USA Patriot Act E) The Gramm-Leach-Bliley Act Answer: D 66. The 1977 law that prevents banks from “redlining” certain neighborhoods, refusing to serve those areas is: A) The National Banking Act B) The Garn-St. Germain Act C) FIRREA D) The Riegle-Neal Interstate Banking and Branching Efficiency Act E) Community Reinvestment Act (CRA) Answer: E 67. Common minimum capital requirements on banks in leading industrialized nations that are based on the riskiness of their assets is imposed by: A) The National Banking Act B) FIRREA C) The International Banking Act D) The Basel Agreement E) None of the Above Answer: D 68. The fastest growing crime in the U.S. is: A) Financial statement misrepresentation B) Bank robberies C) Individual privacy violations D) Credit card fraud E) Identity theft Answer: E 69. The oldest federal bank agency is the: A) OCC B) FDIC C) FRS D) FHC E) BHC Answer: A 70. The federal agency that regulates the most banks is the: A) OCC B) FDIC C) FRS D) FHC E) BHC Answer: B 71. Which federal banking act requires that financial service providers establish the identity of any customers opening new accounts? A) Sarbanes-Oxley Act B) USA Patriot Act C) Check 21 Act D) The FACT Act E) Bankruptcy Abuse Prevention and Consumer Protection Act Answer: B 72. 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? A) Sarbanes-Oxley Act B) USA Patriot Act C) Check 21 Act D) The FACT Act E) Bankruptcy Abuse Prevention and Consumer Protection Act Answer: A 73. Which federal banking act reduces the need for banks to transport paper checks across the country? A) Sarbanes-Oxley Act B) USA Patriot Act C) Check 21 Act D) The FACT Act E) Bankruptcy Abuse Prevention and Consumer Protection Act Answer: C 74. Which federal banking act forces more individuals to repay at least part of what they owe and will push higher-income borrowers into more costly forms of bankruptcy? A) Sarbanes-Oxley Act B) USA Patriot Act C) Check 21 Act D) The FACT Act E) Bankruptcy Abuse Prevention and Consumer Protection Act Answer: E 75. Which federal banking act requires the Federal Trade Commission to make it easier for victims of identity theft to make theft reports and requires credit bureaus to help victims resolve the problem? A) Sarbanes-Oxley Act B) USA Patriot Act C) Check 21 Act D) The FACT Act E) Bankruptcy Abuse Prevention and Consumer Protection Act Answer: D 76. 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 Answer: A 77. One of the earliest theories regarding the impact of regulation on banks was developed by George Stigler. He contends that: A) Firms in regulated industries actually seek out regulations because they bring monopolistic rents. B) Regulations shelter firms from changes in demand and cost, lowering its risk. C) Regulations can increase consumer confidence which increases customer loyalty to regulated firms. D) Depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges. E) None of the above Answer: A 78. Samual Peltzman had an opposing view to George Stigler on the impact of regulation on banks. He contends that: A) Firms in regulated industries actually seek out regulations because they bring monopolistic rents. B) Regulations shelter firms from changes in demand and cost, lowering its risk. C) Regulations can increase consumer confidence which increases customer loyalty to regulated firms. D) Depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges. E) None of the above Answer: B 79. There is an important debate raging today regarding whether banks should be regulated at all. George Benston contends that: A) Firms in regulated industries actually seek out regulations because they bring monopolistic rents. B) Regulations shelter firms from changes in demand and cost, lowering its risk. C) Regulations can increase consumer confidence which increases customer loyalty to regulated firms. D) Depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges. E) None of the above Answer: D 80. The European Central Bank has the main goal of: A) Ensuring the economy grows at an adequate rate. B) Keeping unemployment low. C) Ensuring price stability. D) Ensuring an adequate and fair supply of loans. E) All of the above Answer: C 81. Which of the following has become the principal tool of central bank monetary policy today? A) Open market operations B) Changing the discount rate C) Changing reserve requirements D) Using moral suasion E) None of the above Answer: A 82. The Federal Reserve buys Treasury Bills in the open market. This will tend to: A) Cause interest rates in the market to rise B) Cause interest rates in the market to fall C) Cause reserves held at the Federal Reserve to decrease D) Cause a decrease in the growth of deposits and loans E) All of the above Answer: B 83. 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? A) Sarbanes-Oxley Act B) The Gramm-Leach-Bliley Act C) Check 21 Act D) The FACT Act E) Federal Deposit Insurance Reform Act Answer: E 84. The Financial Services Regulatory Relief Act of 2006 does the following: 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 above E) None of the above Answer: D 85. The Emergency Economic Stabilization Act passed in 2008 during the global credit crisis allowed the following: A) An emergency sale of “bad assets” B) 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) Closer surveillance of the mortgage market participants, such as brokers and lenders E) All of the above Answer: E Test Bank for Bank Management and Financial Services Peter S. Rose, Sylvia C. Hudgins 9780073382432, 9780078034671
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