Question 1

The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 included

Accepted Answer

A) abolishing the Federal Home Loan Bank Board and the FSLIC. 
B) transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift Supervision, a bureau within the U.S. Treasury Department. 
C) establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership. 
D) all of the above. 
E) only A and B of the above. 
A) abolishing the Federal Home Loan Bank Board and the FSLIC. 
B) transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift Supervision, a bureau within the U.S. Treasury Department. 
C) establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership. 
D) all of the above. 
E) only A and B of the above. D

Question 2

According to the text, the Competitive Equality in Banking Act of 1987

Accepted Answer

A) turned the thrift industry around by providing the necessary funds to close the "zombie S&Ls." 
B) lowered the cost of bailing out the S&Ls by quickly closing "zombie S&Ls" before they could cause other thrifts to fail. 
C) failed to provide the funds necessary to close ailing S&Ls, and actually encouraged regulators to continue to pursue regulatory forbearance. 
D) did both A and B of the above. 
A) turned the thrift industry around by providing the necessary funds to close the "zombie S&Ls." 
B) lowered the cost of bailing out the S&Ls by quickly closing "zombie S&Ls" before they could cause other thrifts to fail. 
C) failed to provide the funds necessary to close ailing S&Ls, and actually encouraged regulators to continue to pursue regulatory forbearance. 
D) did both A and B of the above. C

Question 3

Examples of the huge risks that "zombie S&Ls" undertook include

Accepted Answer

A) building shopping centers in the desert. 
B) buying manufacturing plants to convert manure to methane. 
C) purchasing billions of dollars of junk bonds. 
D) all of the above. 
E) only A and B of the above. 
A) building shopping centers in the desert. 
B) buying manufacturing plants to convert manure to methane. 
C) purchasing billions of dollars of junk bonds. 
D) all of the above. 
E) only A and B of the above. D

Question 4

How has the thrift industry been transformed since FIRREA?

Accepted Answer

The thrift industry, which primarily con

Question 5

The Federal Home Loan Bank Board and the FSLIC, both of which failed in their regulatory tasks, were abolished by the

Accepted Answer

A) Competitive Equality in Banking Act of 1987. 
B) Financial Institutions Reform, Recovery, and Enforcement Act of 1989. 
C) Office of Thrift Supervision. 
D) Office of the Comptroller of the Currency. 
A) Competitive Equality in Banking Act of 1987. 
B) Financial Institutions Reform, Recovery, and Enforcement Act of 1989. 
C) Office of Thrift Supervision. 
D) Office of the Comptroller of the Currency.

Question 6

"Zombie S&Ls"

Accepted Answer

A) paid above market interest rates to attract deposits to fuel their lending boom. 
B) offered loans at below market interest rates to expand their lending. 
C) drove down the profitability of solvent S&Ls, threatening to turn them into "zombies" too. 
D) did all of the above. 
E) did only A and B of the above. 
A) paid above market interest rates to attract deposits to fuel their lending boom. 
B) offered loans at below market interest rates to expand their lending. 
C) drove down the profitability of solvent S&Ls, threatening to turn them into "zombies" too. 
D) did all of the above. 
E) did only A and B of the above.

Question 7

Explain the advantages and disadvantages between mutual savings banks and savings and loans.

Accepted Answer

Mutual savings banks and savings and loa

Question 8

When nearly half of the S&Ls in the United States had a negative net worth and were thus insolvent by the end of 1982, regulators adopted a policy of ________, which amounted to ________ capital requirements.

Accepted Answer

A) regulatory forbearance; raising 
B) regulatory forbearance; lowering 
C) regulatory stringency; raising 
D) regulatory stringency; lowering 
A) regulatory forbearance; raising 
B) regulatory forbearance; lowering 
C) regulatory stringency; raising 
D) regulatory stringency; lowering

Question 9

Thrifts

Accepted Answer

A) fueled the home-building boom from 1934-1978. 
B) suffered in the 1970s as inflation rose above deposit interest rate ceilings. 
C) have grown in importance in attracting deposits relative to commercial banks since 1980. 
D) are all of the above. 
E) are only A and B of the above. 
A) fueled the home-building boom from 1934-1978. 
B) suffered in the 1970s as inflation rose above deposit interest rate ceilings. 
C) have grown in importance in attracting deposits relative to commercial banks since 1980. 
D) are all of the above. 
E) are only A and B of the above.

Question 10

The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers because

Accepted Answer

A) of regulators' initial attempts to downplay the seriousness of problems within the thrift industry. 
B) politicians who received generous campaign contributions from the savings and loan industry, like regulators, hoped that the problems in the industry would ease over time. 
C) Congress encouraged, and thrift regulators acceded to, a policy of regulatory forbearance. 
D) of all of the above. 
E) of only A and B of the above. 
A) of regulators' initial attempts to downplay the seriousness of problems within the thrift industry. 
B) politicians who received generous campaign contributions from the savings and loan industry, like regulators, hoped that the problems in the industry would ease over time. 
C) Congress encouraged, and thrift regulators acceded to, a policy of regulatory forbearance. 
D) of all of the above. 
E) of only A and B of the above.

Question 11

Credit unions view commercial banks as government-supported and hence unfair competitors due to their tax advantages.

Accepted Answer

A) True 
 B)False

Question 12

The Competitive Equality in Banking Act of 1987

Accepted Answer

A) discouraged regulators from pursuing regulatory forbearance. 
B) directed regulators to close "zombie S&Ls" as quickly as administratively possible. 
C) encouraged regulators to continue their policy of regulatory forbearance. 
D) did both A and B of the above. 
A) discouraged regulators from pursuing regulatory forbearance. 
B) directed regulators to close "zombie S&Ls" as quickly as administratively possible. 
C) encouraged regulators to continue their policy of regulatory forbearance. 
D) did both A and B of the above.

Question 13

Savings and loans are not as heavily concentrated in mortgages and have had more flexibility in their investing practices than mutual savings banks.

Accepted Answer

A) True 
 B)False

Question 14

The mutual form of ownership accentuates the principal-agent problem that exists in corporations.

Accepted Answer

A) True 
 B)False

Question 15

The congressionally imposed cap on the interest rate that S&Ls could pay on savings accounts became a serious problem for them in the 1970s when inflation rose.

Accepted Answer

A) True 
 B)False

Question 16

The government granted thrifts greater powers in the early 1980s in hopes of turning the industry's problems around. These powers

Accepted Answer

A) required greater expertise in managing risk than many thrift managers possessed. 
B) encouraged thrifts to expand lending rapidly in real estate, increasing their exposure to risk. 
C) expanded the scope and complexity of thrift lending activities that went beyond what regulators could effectively monitor, given their limited resources. 
D) did all of the above. 
E) did only A and B of the above. 
A) required greater expertise in managing risk than many thrift managers possessed. 
B) encouraged thrifts to expand lending rapidly in real estate, increasing their exposure to risk. 
C) expanded the scope and complexity of thrift lending activities that went beyond what regulators could effectively monitor, given their limited resources. 
D) did all of the above. 
E) did only A and B of the above.

Question 17

Savings and loans associations

Accepted Answer

A) initially were allowed to attract funds by offering savings accounts that paid a slightly higher interest rate than that offered by commercial banks. 
B) held about 85 percent of their total assets as mortgages prior to the Great Depression. 
C) did not weather the Great Depression well, as thousands of S&Ls failed in the 1930s. 
D) are all of the above. 
E) are only A and B of the above. 
A) initially were allowed to attract funds by offering savings accounts that paid a slightly higher interest rate than that offered by commercial banks. 
B) held about 85 percent of their total assets as mortgages prior to the Great Depression. 
C) did not weather the Great Depression well, as thousands of S&Ls failed in the 1930s. 
D) are all of the above. 
E) are only A and B of the above.

Question 18

Listing large amounts of goodwill as an asset is another way that savings and loans are able to hide the fact that they are insolvent.

Accepted Answer

A) True 
 B)False

Question 19

FIRREA imposed new restrictions on thrift activities that, in essence, re-regulated the S&L industry to the asset choices it had before 1982.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following reasons explain why federal regulators adopted a policy of regulatory forbearance toward insolvent financial institutions in the early 1980s?

Accepted Answer

A) The FSLIC lacked sufficient funds to cover insured deposits in the insolvent S&Ls. 
B) The regulators were reluctant to close the firms that justified their regulatory existence. 
C) The Federal Home Loan Bank Board and the FSLIC were reluctant to admit that they were in over their heads with problems. 
D) All of the above are reasons. 
E) Only A and B of the above are reasons. 
A) The FSLIC lacked sufficient funds to cover insured deposits in the insolvent S&Ls. 
B) The regulators were reluctant to close the firms that justified their regulatory existence. 
C) The Federal Home Loan Bank Board and the FSLIC were reluctant to admit that they were in over their heads with problems. 
D) All of the above are reasons. 
E) Only A and B of the above are reasons.

Exam 25: Savings Associations and Credit Unions

The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 included

According to the text, the Competitive Equality in Banking Act of 1987

Examples of the huge risks that "zombie S&Ls" undertook include

How has the thrift industry been transformed since FIRREA?

The Federal Home Loan Bank Board and the FSLIC, both of which failed in their regulatory tasks, were abolished by the

"Zombie S&Ls"

Explain the advantages and disadvantages between mutual savings banks and savings and loans.

When nearly half of the S&Ls in the United States had a negative net worth and were thus insolvent by the end of 1982, regulators adopted a policy of ________, which amounted to ________ capital requirements.

Thrifts

The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers because

Credit unions view commercial banks as government-supported and hence unfair competitors due to their tax advantages.

The Competitive Equality in Banking Act of 1987

Savings and loans are not as heavily concentrated in mortgages and have had more flexibility in their investing practices than mutual savings banks.

The mutual form of ownership accentuates the principal-agent problem that exists in corporations.

The congressionally imposed cap on the interest rate that S&Ls could pay on savings accounts became a serious problem for them in the 1970s when inflation rose.

The government granted thrifts greater powers in the early 1980s in hopes of turning the industry's problems around. These powers

Savings and loans associations

Listing large amounts of goodwill as an asset is another way that savings and loans are able to hide the fact that they are insolvent.

FIRREA imposed new restrictions on thrift activities that, in essence, re-regulated the S&L industry to the asset choices it had before 1982.

Which of the following reasons explain why federal regulators adopted a policy of regulatory forbearance toward insolvent financial institutions in the early 1980s?

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Finance Companies

Filters

When nearly half of the S&Ls in the United States had a negative net worth and were thus insolvent by the end of 1982, regulators adopted a policy of , which amounted to capital requirements.