Question 1

Identify the action taken by OCC and the Federal Reserve in 1997,to expand the permitted activities of bank holding companies.

Accepted Answer

A) Repealed the Glass-Steagall barriers between commercial banking and investment banking. 
B) Allowed commercial banks to acquire directly existing investment banks. 
C) Allowed investment banks to offer banking products. 
D) Allowed investment banks to offer deposit products. 
A) Repealed the Glass-Steagall barriers between commercial banking and investment banking. 
B) Allowed commercial banks to acquire directly existing investment banks. 
C) Allowed investment banks to offer banking products. 
D) Allowed investment banks to offer deposit products.

Question 2

In order to achieve a more stable revenue stream in a merger,the asset and liability portfolios of the two institutions should have similar credit,interest rate,and liquidity characteristics.

Accepted Answer

A) True 
 B)False

Question 3

Section 20 affiliates allow banks to transact previously ineligible securities activities.

Accepted Answer

A) True 
 B)False

Question 4

If Bank 1 is acquired by Bank 2,what is the impact on the market's HHI? $\begin{array}{lccc}
  \text {Bank }&  \text { Asset Size}\
 1&\$ 100    \text { million}\
2& \$ 200   \text { million}\
3&\$ 500  \text {  million}\
\end{array}$

Accepted Answer

A) An increase in the HHI of 1600. 
B) An increase in the HHI of 625. 
C) An increase in the HHI of 1563. 
D) A decrease in the HHI of 222. 
A) An increase in the HHI of 1600. 
B) An increase in the HHI of 625. 
C) An increase in the HHI of 1563. 
D) A decrease in the HHI of 222.

Question 5

The Financial Services Modernization Act of 1999 prohibits insurance companies from opening commercial banks.

Accepted Answer

A) True 
 B)False

Question 6

Concern about bank solvency has been used to justify product segmentation on the grounds of

Accepted Answer

A) safety and soundness issues. 
B) economy of scale and scope issues. 
C) conflict of interest issues. 
D) deposit insurance issues. 
A) safety and soundness issues. 
B) economy of scale and scope issues. 
C) conflict of interest issues. 
D) deposit insurance issues.

Question 7

Prior to the International Banking Act of 1978,foreign banks operating with state licenses

Accepted Answer

A) were not subject to the Federal Reserve's reserve requirements. 
B) were not subject to interstate branching restrictions. 
C) were not subject to restrictions on corporate securities underwriting. 
D) All of the options. 
A) were not subject to the Federal Reserve's reserve requirements. 
B) were not subject to interstate branching restrictions. 
C) were not subject to restrictions on corporate securities underwriting. 
D) All of the options.

Question 8

Historically,regulations have encouraged the expansion of bank offices domestically.

Accepted Answer

A) True 
 B)False

Question 9

This legislation defines a bank as any institution that accepts deposit insurance coverage.

Accepted Answer

A) The McCarran-Ferguson Act of 1945. 
B) The Bank Holding Company Act of 1956. 
C) The Garn-St.Germain Act of 1982. 
D) The Competitive Equality Banking Act of 1987. 
A) The McCarran-Ferguson Act of 1945. 
B) The Bank Holding Company Act of 1956. 
C) The Garn-St.Germain Act of 1982. 
D) The Competitive Equality Banking Act of 1987.

Question 10

A one bank holding company is a parent bank holding company with only one subsidiary involved in banking activities.

Accepted Answer

A) True 
 B)False

Question 11

Firewalls are

Accepted Answer

A) barriers introduced to protect the bank against affiliate losses. 
B) mechanisms to insure bank shareholders against loss. 
C) regulations restricting the proliferation of Section 20 subsidiaries. 
D) limitations on capital flows to the parent company. 
A) barriers introduced to protect the bank against affiliate losses. 
B) mechanisms to insure bank shareholders against loss. 
C) regulations restricting the proliferation of Section 20 subsidiaries. 
D) limitations on capital flows to the parent company.

Question 12

The Riegle-Neal Act of 1994

Accepted Answer

A) specifically allows banks to establish de novo branches in new states. 
B) effectively stopped full interstate branching within the U.S. 
C) is given credit for initiating a wave of bank mergers across the U.S. 
D) allowed foreign banks to acquire U.S.banks. 
A) specifically allows banks to establish de novo branches in new states. 
B) effectively stopped full interstate branching within the U.S. 
C) is given credit for initiating a wave of bank mergers across the U.S. 
D) allowed foreign banks to acquire U.S.banks.

Question 13

Which of the following is NOT a potential conflict of interest identified by regulators and academics?

Accepted Answer

A) Salesperson's stake. 
B) Stuffing fiduciary accounts. 
C) Bankruptcy risk transference. 
D) Procompetitive effects. 
A) Salesperson's stake. 
B) Stuffing fiduciary accounts. 
C) Bankruptcy risk transference. 
D) Procompetitive effects.

Question 14

The following three FIs dominate a local market and their total assets are given below. 
$\begin{array}{lccc}
  \text {Institution  }&  \text { Asset Size}\
  \text {Bank A}&\$ 50    \text { million}\
  \text {Bank B}& \$ 60   \text { million}\
  \text {Bank  C}&\$ 90  \text {  million}\
\end{array}$
 What are the market shares of banks A,B and C,respectively?

Accepted Answer

A) 25 percent,45 percent,and 30 percent. 
B) 30 percent,40 percent,and 30 percent. 
C) 40 percent,30 percent,and 30 percent. 
D) 25 percent,30 percent,and 45 percent. 
A) 25 percent,45 percent,and 30 percent. 
B) 30 percent,40 percent,and 30 percent. 
C) 40 percent,30 percent,and 30 percent. 
D) 25 percent,30 percent,and 45 percent.

Question 15

Which action of the holding company to help its securities affiliate can damage the financial health of its banking subsidiary?

Accepted Answer

A) Downstreaming funds from the subsidiary and then upstreaming it to the securities affiliate. 
B) Upstreaming funds from the securities affiliate and then downstreaming it to the bank subsidiary. 
C) Indulging in product diversification. 
D) Upstreaming funds from the bank subsidiary and then downstreaming it to the securities affiliate. 
A) Downstreaming funds from the subsidiary and then upstreaming it to the securities affiliate. 
B) Upstreaming funds from the securities affiliate and then downstreaming it to the bank subsidiary. 
C) Indulging in product diversification. 
D) Upstreaming funds from the bank subsidiary and then downstreaming it to the securities affiliate.

Question 16

In the banking environment,economic and legal firewalls often have been designed to separate the risks of investment bank affiliate activities from commercial banks.

Accepted Answer

A) True 
 B)False

Question 17

The following three FIs dominate a local market and their total assets are given below. 
$\begin{array}{lccc}
  \text {Institution  }&  \text { Asset Size}\
  \text {Bank A}&\$ 50    \text { million}\
  \text {Bank B}& \$ 60   \text { million}\
  \text {Bank  C}&\$ 90  \text {  million}\
\end{array}$
 What is the Herfindahl-Hirschman Index (HHI)for the local market?

Accepted Answer

A) 1,000. 
B) 3,450. 
C) 3,550. 
D) 3,400. 
A) 1,000. 
B) 3,450. 
C) 3,550. 
D) 3,400.

Question 18

The commercial paper market is an example of nonbank competition on the asset side of the balance sheet that has become increasingly intense for banks.

Accepted Answer

A) True 
 B)False

Question 19

The realization of revenue synergies from the acquisition of a bank may come

Accepted Answer

A) from expansion into less than fully competitive markets. 
B) from acquiring a bank in a growing market. 
C) through diversification of asset and liability mixes between the two banks. 
D) All of the options. 
A) from expansion into less than fully competitive markets. 
B) from acquiring a bank in a growing market. 
C) through diversification of asset and liability mixes between the two banks. 
D) All of the options.

Question 20

One result of the FBSEA was the increase in the regulatory burden of foreign banks in the U.S.

Accepted Answer

A) True 
 B)False

Exam 21: Product and Geographic Expansion

Identify the action taken by OCC and the Federal Reserve in 1997,to expand the permitted activities of bank holding companies.

In order to achieve a more stable revenue stream in a merger,the asset and liability portfolios of the two institutions should have similar credit,interest rate,and liquidity characteristics.

Section 20 affiliates allow banks to transact previously ineligible securities activities.

If Bank 1 is acquired by Bank 2,what is the impact on the market's HHI? Bank Asset Size 1 \ 100 million 2 \ 200 million 3 \ 500 million

The Financial Services Modernization Act of 1999 prohibits insurance companies from opening commercial banks.

Concern about bank solvency has been used to justify product segmentation on the grounds of

Prior to the International Banking Act of 1978,foreign banks operating with state licenses

Historically,regulations have encouraged the expansion of bank offices domestically.

This legislation defines a bank as any institution that accepts deposit insurance coverage.

A one bank holding company is a parent bank holding company with only one subsidiary involved in banking activities.

Firewalls are

The Riegle-Neal Act of 1994

Which of the following is NOT a potential conflict of interest identified by regulators and academics?

The following three FIs dominate a local market and their total assets are given below. Institution Asset Size Bank A \ 50 million Bank B \ 60 million Bank C \ 90 million What are the market shares of banks A,B and C,respectively?

Which action of the holding company to help its securities affiliate can damage the financial health of its banking subsidiary?

In the banking environment,economic and legal firewalls often have been designed to separate the risks of investment bank affiliate activities from commercial banks.

The following three FIs dominate a local market and their total assets are given below. Institution Asset Size Bank A \ 50 million Bank B \ 60 million Bank C \ 90 million What is the Herfindahl-Hirschman Index (HHI)for the local market?

The commercial paper market is an example of nonbank competition on the asset side of the balance sheet that has become increasingly intense for banks.

The realization of revenue synergies from the acquisition of a bank may come

One result of the FBSEA was the increase in the regulatory burden of foreign banks in the U.S.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters