Deck 12: Regulation of the Banking System and the Financial Services Industry

Question 1

If left to decide the level of risk on their own, banks or other intermediaries will generally accept _______ risk, because they fail to consider the additional costs of failure that the community at large must bear.

A)too much
B)too little
C)the appropriate amount of
D)none of these answers are correct

Answer 1

A

Question 2

Which of the following changes result in concerns about the adequacy of banking regulation?

A)new products and markets
B)technological change in the delivery of financial services
C)globalization
D)All of the above are correct.

Answer 2

D

Question 3

__________ removed many of the regulations established during the Great Depression. It phased out Regulation Q interest rate ceilings, established uniform and universal reserve requirements, increased the assets and liabilities that depository institutions could hold, authorized NOW accounts, and suspended usury ceilings.

A)The Glass-Steagall Act of 1933
B)The Garn-St. Germain Depository Institutions Act of 1982
C)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
D)The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA)

Answer 3

D

Question 4

Which of the following was not a main provision of Depository Institutions Deregulation and Monetary Control Act (DIDMCA)?

A)phased out Regulation Q interest rate ceilings over a six-year period
B)authorized money market deposit accounts
C)expanded the asset and liability powers of banks and thrifts
D)allowed all depository institutions to offer NOW accounts

Question 5

The Garn-St. Germain Act of 1982

A)authorized money market deposit accounts and Super NOW accounts.
B)imposed universal and uniform reserve requirements.
C)slowed down the rate at which Regulation Q interest rate ceilings were removed.
D)All of the above are correct.

Question 6

Which of the following statements best describes the unintended consequences of usury ceilings?

A)Usury ceilings placed above equilibrium increase the quantity supplied of loans and decrease the quantity demanded of loans. This creates a shortage.
B)Usury ceilings cause the demand for loans to increase. Since supply does not increase, a shortage emerges.
C)Usury ceilings placed below the equilibrium interest rate cause the quantity demanded of loans to be greater than the quantity supplied. As a result, there is a shortage.
D)Usury ceilings cause the demand curve to shift rightward and the supply curve to shift leftward. As a result, the market no longer clears and a shortage of loans develops.

Question 7

The _______________________ sets margin requirements for the purchase of stocks and bonds.

A)FDIC
B)Securities and Exchange Commission (SEC)
C)Federal Reserve
D)National Association of Securities Dealers

Question 8

The Federal Reserve sets ________ for the purchase of stocks and bonds.

A)minimum prices
B)margin requirements
C)fees
D)All of the above are correct.

Question 9

The Garn-St. Germain Depository Institutions Act was passed in order to

A)speed up the pace of deregulation.
B)allow depository institutions the ability to offer money market deposit accounts and Super NOW accounts.
C)help depository institutions compete with money market mutual funds.
D)All of the above are correct.

Question 10

__________ greatly expanded the lending powers of S&Ls and created money market deposit accounts.

A)Depository Institutions Deregulation and Monetary Control Act (DIDMCA)
B)SAIF
C)The Garn-St. Germain Act
D)FDIC

Question 11

The __________, passed in 1988, is an agreement among twelve countries to set international capital standards for banks.

A)Basel Accord
B)Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
C)Federal Deposit Insurance Corporation Improvement Act (FDICIA)
D)Interstate Banking and Branching Efficiency Act (IBBEA)

Question 12

The __________, passed in 1989, injected $50 billion into the newly created SAIF, set up the Office of Thrift Supervision (OTS) and the Resolution Trust Corporation (RTC), made deposit insurance a full-faith and credit obligation of the federal government, imposed new regulations on assets, and imposed capital requirements.

A)Community Reinvestment Act
B)Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
C)Federal Deposit Insurance Corporation Improvement Act (FDICIA)
D)Interstate Banking and Branching Efficiency Act (IBBEA)

Question 13

The __________, passed in 1991, enacted regulatory changes intended to insure the safety and soundness of banks and thrifts.

A)Community Reinvestment Act
B)Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
C)Federal Deposit Insurance Corporation Improvement Act (FDICIA)
D)Interstate Banking and Branching Efficiency Act (IBBEA)

Question 14

Which act was chiefly responsible for bailing out the S&L industry?

A)The Basel Accord of 1988
B)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
C)The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
D)The Interstate Banking and Branching Efficiency Act (IBBEA) of 1994

Question 15

Which act authorized financial holding companies?

A)Gramm-Leach-Bliley Act of 1999
B)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
C)The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
D)The Interstate Banking and Branching Efficiency Act (IBBEA) of 1994

Question 16

Which act virtually eliminated the geographic restrictions of banks and effectively repealed the McFadden Act of 1927?

A)The Basel Accord of 1988
B)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
C)The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
D)The Interstate Banking and Branching Efficiency Act (IBBEA) of 1994

Question 17

Which act imposed risk-based insurance premiums?

A)The Basel Accord of 1988
B)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
C)The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
D)The Interstate Banking and Branching Efficiency Act (IBBEA) of 1994

Question 18

Which of the following statements about the Community Reinvestment Act of 1977 is false?

A)The Community Reinvestment Act is enforced through the denial of bank mergers.
B)The act encourages banks to discover community needs, create services needed by the community, participate in government-insured lending programs, train employees to be responsive to requirements of the Community Reinvestment Act, and market services directly to low- and moderate-income groups.
C)The Community Reinvestment Act provides benefits to minority and lower income communities but not to financial intermediaries.
D)The purpose of the Community Reinvestment Act is to increase the availability of credit to economically disadvantaged areas.

Question 19

The __________, passed in 1977, attempts to increase the availability of credit to economically disadvantaged areas and to correct alleged discriminatory lending practices.

A)Community Reinvestment Act
B)Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
C)Federal Deposit Insurance Corporation Improvement Act (FDICIA)
D)Interstate Banking and Branching Efficiency Act (IBBEA)

Question 20

The __________, passed in 1994, eliminated most restrictions on interstate banking.

A)Community Reinvestment Act
B)Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
C)Federal Deposit Insurance Corporation Improvement Act (FDICIA)
D)Interstate Banking and Branching Efficiency Act (IBBEA)

Question 21

Which of the following statements regarding the Interstate Banking and Branching Act (IBBEA) of 1994 is false?

A)It eliminates virtually all restrictions on interstate bank mergers.
B)It makes interstate branching possible.
C)It effectively repealed the McFadden Act of 1927.
D)It allows banks to use a branch to generate deposits without considering the implications of the Community Reinvestment Act.

Question 22

Which of the following insures deposits in credit unions?

A)National Credit Union Administration
B)the Fed
C)Office of the Comptroller of the Currency
D)National Credit Union Share Insurance Fund

Question 23

Which of the following insures deposits in credit unions?

A)U.S. Treasury
B)the Fed
C)FDIC
D)National Credit Union Share Insurance Fund

Question 24

Which of the following was set up for self-regulation by the financial futures industry?

A)the Commodity Futures Trading Commission
B)the Federal Trade Commission
C)the National Futures Association
D)the Securities and Exchange Commission

Question 25

Which of the following was set up by the financial options industry for self-regulation?

A)the Securities and Exchange Commission
B)the Federal Trade Commission
C)the National Options Association
D)the Options Clearing Corporation

Question 26

Financial options are regulated by which government agency?

A)the Commodity Futures Trading Commission
B)the Securities and Exchange Commission
C)the Federal Trade Commission
D)the Options Clearing Corporation

Question 27

Pension funds are regulated by

A)the Department of Labor.
B)the Pension Benefit Guaranty Corporation.
C)the Securities and Exchange Commission.
D)no federal agency.

Question 28

The ________________________ insures the portfolio of retail customers of brokerage firms for up to $500,000 if the brokerage firm becomes insolvent.

A)Securities and Exchange Commission (SEC)
B)Federal Trade Commission
C)Securities Investor Protection Corporation
D)FDIC

Question 29

The Investment Company Act of 1940 gave the Securities and Exchange Commission (SEC) regulatory control over which of the following?

A)financial options
B)insurance companies
C)mutual funds
D)financial futures

Question 30

The Investment Company Act of 1940 gave the regulatory control over mutual funds to the

A)Federal Reserve.
B)Office of the Comptroller of the Currency.
C)Securities and Exchange Commission (SEC) .
D)U.S. Treasury.

Question 31

Mutual funds are regulated by the

A)Fed.
B)FDIC.
C)Securities and Exchange Commission (SEC).
D)Federal Trade Commission.

Question 32

Insurance companies are regulated by the

A)Federal Trade Commission.
B)FDIC.
C)Securities and Exchange Commission (SEC).
D)insurance commissioner of the state in which they do business.

Question 33

Trading by those who have access to information on new securities before they are made public is called which of the following?

A)fast-track trading
B)new secure trading
C)insider trading
D)fraudulent trading

Question 34

The Resolution Trust Corporation (RTC) was created to

A)provide deposit insurance for thrift intermediaries.
B)provide deposit insurance for S&Ls.
C)regulate credit unions.
D)dispose of the properties of the failed S&Ls.

Question 35

Which of the following is the agency that was in charge of the Resolution Trust Corporation (RTC)?

A)the Fed
B)the Office of Thrift Supervision (OTS)
C)the FDIC
D)the FSLIC

Question 36

Which of the following set minimum capital requirement for the savings and loans?

A)the Basel Accord
B)the Federal Reserve
C)the Securities and Exchange Commission
D)the Financial Institutions Reform Recovery, and Enforcement Act of 1989 (FIRREA)

Question 37

The Office of Thrift Supervision (OTS) was created to

A)regulate credit unions.
B)dispose of the properties of the failed S&Ls.
C)oversee the S&L industry.
D)regulate the investments of the S&Ls.

Question 38

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) limited insurance coverage in regular accounts to a maximum of __________ per account until 2010.

A)$50,000
B)$100,000
C)$200,000
D)$1,000,000

Question 39

The practice of drawing a line around a certain area on a map and restricting the number or dollar amount of loans made in that area without regard to the credit worthiness of the borrower is called

A)redlining.
B)blackballing.
C)insider trading.
D)greenfielding.

Question 40

Which of the following is not considered a current regulator of the banking system?

A)the Fed
B)the Securities and Exchange Commission
C)the Office of the Comptroller of the Currency
D)the FDIC

Question 41

Which of the following is a current regulator of banks?

A)the Fed
B)the Securities and Exchange Commission
C)the Office of Thrift Supervision
D)the Resolution Trust Corporation

Question 42

Which of the following is false?

A)Regulation must balance the goals of competition and efficiency versus safety and soundness.
B)Historically, regulation encouraged market segmentation.
C)The regulatory structure is in the process of ongoing change.
D)Investment and commercial banking are still separated.

Question 43

Prior to 1989, the S&L industry was regulated by which of the following?

A)the Office of Thrift Supervision (OTS)
B)the Fed
C)the FDIC
D)the Federal Home Loan Bank Board

Question 44

Why have depository institutions been regulated?

A)because the failure of a depository institution has system-wide repercussions
B)because all industries in the economy are highly regulated
C)because in the past, depository institutions have made outlandish profits
D)All of the above are correct.

Question 45

Credit crunches occur when

A)the quantity supplied of credit is greater than the quantity demanded at the prevailing interest rate.
B)the quantity demanded of credit is greater than the quantity supplied at the prevailing interest rate.
C)the quantity supplied of credit is greater than the quantity demanded at all interest rates.
D)the supply of a particular type of credit is greater than demand.

Question 46

According to the "too-big-to-fail" doctrine, a bank insolvency should be resolved by using the

A)payoff method.
B)purchase and assumption method.
C)least costly method.
D)big-fail doctrine.

Question 47

The Federal Deposit Insurance Corporation Improvement Act of 1991 required bank regulators to use the ____________________ in resolving a bank insolvency.

A)payoff method
B)purchase and assumption method
C)least costly method
D)too big-to fail-doctrine

Question 48

Provisions of the Gramm-Leach-Bliley Act (GLBA) include all of the following except:

A)authorized financial holding companies that could engage in a broad array of financial and nonfinancial activities
B)authorized banks to underwrite and market municipal revenue bonds
C)authorized banks to own or control financial subsidiaries that engage in activities that national banks are not permitted to engage in; prior approval must received by the Office of the Controller of the Currency
D)repeal of the "too-big-to-fail" doctrine

Question 49

A/An _________________________ is a bank holding company that may engage in an even more extensive array of financial and nonfinancial activities than traditional bank holding companies.

A)financial holding company
B)interstate bank
C)financial intermediary
D)super bank

Question 50

A financial holding company is a bank holding company that may engage in an even more extensive array of financial and nonfinancial activities than __________.

A)nonbanks
B)traditional bank holding companies
C)Federal Reserve banks
D)Both a and c are correct.

Question 51

Which of the following acts repealed the separation between commercial and investment banking?

A)the Glass-Steagall Act
B)the Depository Institutions Deregulation and Monetary Control Act (DIDMCA)
C)the Gramm-Leach-Bliley Act (GLBA)
D)the Garn-St. Germain Act

Question 52

Which of the following acts merged the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund (BIF)?

A)the Glass-Steagall Act
B)the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA)
C)the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
D)the Federal Deposit Insurance Reform Act of 2005

Question 53

__________ removed many of the regulations established during the Great Depression. It phased out Regulation Q interest rate ceilings, established uniform and universal reserve requirements, increased the assets and liabilities that depository institutions could hold, authorized NOW accounts, and suspended usury ceilings.

A)the Glass-Steagall Act of 1933
B)the Garn-St. Germain Depository Institutions Act of 1982.
C)the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
D)the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).

Question 54

Which of the following did not contribute to the passage of Depository Institutions Deregulation and Monetary Control Act (DIDMCA) in 1980?

A)inflation
B)technological advances
C)volatile financial environment
D)low interest rates

Question 55

Limits placed on the interest rate that may be charged for a loan are called

A) usury ceilings.
B) Regulation
C) Regulation Q.
D) universal interest rate requirements.

Question 56

______________________________ prescribes reserve requirements on checkable deposits.

A)A usury law
B)Regulation D
C)Regulation Q
D)A universal and uniform reserve requirement

Question 57

Regulation D prescribes __________ on checkable deposits.

A)reserve requirements
B)minimum interest rates
C)mandatory fees
D)All of the above are correct.

Question 58

Fully checkable deposit accounts that pay market rates of interest but require a minimum balance are called

A)super NOW accounts.
B)money market deposit accounts.
C)pass-through securities.
D)securitizations.

Question 59

Fully insured deposit accounts having no interest rate ceiling and allowing limited check writing are called

A)super now accounts.
B)money market deposit accounts.
C)pass-through securities.
D)securitizations.

Question 60

Regulation Q interest rate ceilings were phased out beginning in which year?

A)1940
B)1956
C)1967
D)1980

Question 61

In what year was the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) passed?

A)1976
B)1980
C)1985
D)1987

Question 62

What term is used to describe the maximum interest rate FIs were allowed to charge borrowers for certain types of loans?

A)Regulation Q interest rate ceilings
B)usury ceilings
C)interest rate floors
D)None of the above is correct.

Question 63

Which of the following was a deregulation provision covered by the Depository Institutions Deregulation and Monetary Control Act (DIDMCA)?

A)expansion of asset and liability powers for banks and thrifts
B)reserve requirements for all depository institutions
C)uniform reserve requirements
D)universal interest rate requirements

Question 64

Which of the following is considered a monetary control measure covered by the Depository Institutions Deregulation and Monetary Control Act (DIDMCA)?

A)the phasing out of Regulation Q
B)uniform reserve requirements
C)suspension of state maximum interest rates on loans
D)All of the above are correct.

Question 65

The desired effect of deregulation was which of the following?

A)improved quantity and quality of financial services
B)reduction in cost of financial services
C)greater efficiency
D)All of the above are correct

Question 66

The desired effect of the monetary control provisions of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) was which of the following?

A)uniform reserve requirements for all depository institutions strengthening the effectiveness of the regulatory process
B)expanded Federal Reserve powers
C)universal reserve requirements for all depository institutions strengthening the effectiveness of the regulatory process
D)All of the above are correct.

Question 67

In what year was the Garn-St. Germain Depository Institutions Act enacted?

A)1972
B)1982
C)1987
D)1994

Question 68

The Garn-St. Germain Depository Institutions Act was passed in order to

A)authorize interest earning checking accounts.
B)prevent depository institutions from offering interest earning checking accounts.
C)help depository institutions compete with money market mutual funds by being able to authorize money market deposit accounts.
D)phase out Regulation Q interest rate ceilings.

Question 69

The Garn-St. Germain Depository Institutions Act was developed to

A)speed up the pace of deregulation.
B)prevent depository institutions from offering money market deposit accounts and Super NOW accounts.
C)prevent depository institutions from competing with money market mutual funds.
D)All of the above are correct.

Question 70

Which act set uniform and universal reserve requirements?

A)Depository Institutions Deregulation and Monetary Control Act (DIDMCA)
B)the Community Reinvestment Act
C)The Garn-St. Germain Act
D)Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

Question 71

The Depository Institutions Deregulatory and Monetary Control Act of 1980 (DIDMCA)

A)expanded the asset and liability powers for banks and thrifts.
B)removed many of the regulations that had been put in place during the Great Depression.
C)set uniform and universal reserve requirements for all depositories and suspended usury ceilings.
D)All of the above are correct

Question 72

The Depository Institutions Deregulatory and Monetary Control Act of 1980 (DIDMCA)

A)reduced the asset and liability powers for banks and thrifts.
B)reinforced many of the regulations that had been put in place during the Great Depression.
C)set uniform and universal reserve requirements for all depositories and suspended usury ceilings.
D)All of the above are correct.

Question 73

Which act imposed uniform capital standards among twelve countries?

A)The Basel Accord of 1988
B)The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989
C)The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
D)The Interstate Banking and Branching Efficiency Act (IBBEA) of 1994

Question 74

Which of the following did the Basel Accord not do?

A)Mandated requirements for core capital and total capital based upon risk-adjusted assets and total assets
B)Defined core capital as total capital plus supplemental capital (loan loss reserves plus subordinated debt)
C)Defined core capital as the historical value of outstanding stock plus retained earnings
D)Defined risk-adjusted assets by assigning different weights to different types of assets, depending on their risk

Question 75

Which of the following did the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) not do?

A)injected $50 billion-raised by issuing taxpayer-financed bonds-into a newly created SAIF
B)created the Office of Thrift Supervision (OTS) and Resolution Trust Corporation (RTC)
C)relaxed restrictions on the investments S&Ls could make
D)made deposit insurance the full-faith and credit obligation of the federal government

Question 76

Which of the following did the Federal Deposit Insurance Corporation Improvement Act (FDICIA) not do?

A)computed insurance premiums based on the risk exposure of the depository institution
B)limited insurance coverage in regular accounts to a maximum of $100,000
C)set limits on the capability of foreign banks in the United States to use certain categories of deposits
D)required the FDIC to use the swiftest method possible to resolve any insolvency even if the method was more expensive in the long run

Question 77

Which of the following statements regarding bank regulation is true?

A)The Basel Accord specifies the amount of reserves banks must hold relative to their deposits.
B)The 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) was passed in response to the 1987 stock market crash and was an attempt at deregulation following the crises of the early 1980s.
C)The Community Reinvestment Act has been weakened by the recent increase in bank mergers.
D)As a result of the Basel Accord, Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the Federal Deposit Insurance Corporation Improvement Act (FDICIA), banks and other depositories are now subject to both risk-based capital standards and risk-based insurance premiums.

Question 78

During the early 1980s banks and most other intermediaries were __________ deregulated.

A)slightly
B)not
C)substantially
D)None of the above

Question 79

Before the 1980s, regulations encouraged which of the following?

A)bank runs
B)high returns on assets
C)bank insolvencies
D)specialization

Question 80

Which of the following are considered regulated financial products?

A)S&Ls
B)insurance companies
C)banks
D)stocks