Deck 9: Commercial Banking Structure, Regulation, and Performance

Question 1

For a financial intermediary, the excess of interest earned on loans over the interest paid to depositors is best described by which of the following?

A)negative cash flow
B)loss
C)profit
D)ineffectual management

Answer 1

C

Question 2

Commercial banks must decide which of the following?

A)The interest rate commercial banks will pay to borrow and lend funds.
B)The types of loans commercial banks will make.
C)The type of securities commercial banks will acquire.
D)All of the above must be decided.

Answer 2

D

Question 3

Which of the following were part of the Glass-Steagall Act of 1933?

A)imposing minimum floors on interest rates
B)prohibiting interest payments on demand deposits
C)creation of the FDIC
D)All of the above were parts.
E)both b and c

Answer 3

E

Question 4

Which of the following was not part of the Glass-Steagall Act of 1933?

A)interstate banking and branching
B)imposing minimum floors on interest rates
C)creation of the FDIC
D)Both a and b are correct.

Question 5

Prior to the 1980s, regulation of the banking system included which of the following?

A)restrictions on entry
B)regulation Q interest rate ceilings
C)restrictions on branching
D)All of the above are correct.

Question 6

In order to be a commercial bank in the United States, a bank must be

A)Chartered.
B)part government owned.
C)Certificated.
D)All of the above are correct.

Question 7

In order to be a commercial bank in the United States, a bank must be

A)approved by the U.S. Senate.
B)part government owned.
C)chartered.
D)certificated.

Question 8

In order to open, commercial banks must be which of the following?

A)open for online business at least
B)chartered by the state or federal government
C)highly profitable
D)registered with the FDIC

Question 9

When a bank is granted a charter by the federal government, the bank is called which of the following?

A)a state bank
B)a Federal Reserve bank
C)a national bank
D)a dually chartered financial institution

Question 10

Who is the primary regulator of state-chartered, insured, non-Fed-member banks?

A)the Federal Deposit Insurance Corporation
B)the Comptroller of the Currency
C)the Fed
D)the state in which they are chartered

Question 11

The phrase dual banking system refers to

A)the system whereby bank holding companies are allowed to have branches in more than one state.
B)the system whereby depository institutions are regulated by at least two federal financial regulatory agencies.
C)the system whereby banks may have either a national or a state charter.
D)None of the above is correct.

Question 12

Who regulates state-chartered, insured, Fed-member banks?

A)the Federal Deposit Insurance Corporation
B)the Comptroller of the Currency
C)the Fed
D)Both the Fed and the FDIC regulate state-chartered, insured, Fed-member banks.

Question 13

Who regulates national banks that are not bank holding companies?

A)the Federal Deposit Insurance Corporation
B)the Comptroller of the Currency
C)the Fed
D)All of the above regulate national banks that are not bank holding companies.

Question 14

Who is the primary regulator of national banks that are bank holding companies?

A)The Federal Deposit Insurance Corporation
B)The Comptroller of the Currency
C)The Fed
D)The states

Question 15

Who regulates state-chartered, non-Fed-member, non-FDIC insured banks?

A)the Federal Deposit Insurance Corporation
B)the Comptroller of the Currency
C)the Fed
D)the state in which the bank is chartered

Question 16

Commercial banks that are members of the Fed are

A)provided discount privileges with the Fed.
B)regulated by the Fed.
C)subject to reserve requirements set by the Fed.
D)All of the above are correct.

Question 17

Commercial banks that are members of the Fed are

A)not provided discount privileges with the Fed.
B)regulated by the Fed.
C)not subject to reserve requirements set by the Fed.
D)All of the above of the above are correct.

Question 18

The Federal Financial Institutions Examination Council (FFIEC)

A)prescribes uniform principles, standards, and report forms for the bank regulatory agencies.
B)regulates bank holding companies.
C)provides backing for the FDIC.
D)provides discount privileges from the Fed.

Question 19

The dual banking system

A)was thought to foster competition and innovation among banks.
B)has resulted in a large number of small banks and a small number of large banks.
C)means that banks can have a federal or national charter.
D)All of the above are correct.

Question 20

A dual banking system refers to which of the following?

A)banks with sister banks out of state
B)banks insured by the FDIC
C)commercial banks being chartered and regulated by either the state or federal government
D)banks working both within and outside the United States

Question 21

Which of the following is true?

A)The intent of Congress was to establish a dual banking system when it passed the National Currency Act of 1863 and the National Banking Act of 1864.
B)After the National Currency Act of 1863 and the National Banking Act of 1864, the banknotes issued by national banks circulated at full value and were backed by government bonds; however, in exchange for this feature, they were subject to a 10 percent tax.
C)Prior to the National Currency Act of 1863 and the National Banking Act of 1864, all banks were chartered by states and banks issued their own banknotes.
D)After the National Currency Act of 1863 and the National Banking Act of 1864, state banks could not stay in business without issuing their own banknotes.

Question 22

Nationally chartered banks are subject to the regulatory and supervisory authority of the

A)Comptroller of the Currency.
B)Federal Reserve.
C)FDIC.
D)All of the above regulate and supervise national banks.

Question 23

The federal agency assigned the task of granting charters for national banks is the

A)Federal Deposit Insurance Corporation.
B)Office of Economic Advisors.
C)U.S. Department of the Treasury.
D)Office of the Comptroller of the Currency.

Question 24

Federally chartered banks must

A)belong to the Federal Reserve system.
B)hold federal deposit insurance with the FDIC.
C)remain highly profitable at all times.
D)Both a and b are correct.

Question 25

Banks have the ability to apply for a

A)state charter
B)federal charter
C)international charter
D)state or a federal charter
E)federal and international charter

Question 26

A state-chartered bank which is not a member of the Fed is regulated by which of the following?

A)the Federal Reserve System
B)the comptroller of the currency
C)its state banking authority or by the FDIC
D)the FDIC only

Question 27

If a state-chartered bank wishes to join the Federal Reserve System, it must do which of the following?

A)change its charter to a national bank
B)become part of a bank holding company
C)subscribe to federal deposit insurance
D)All of the above are correct.

Question 28

If a state-chartered bank wishes to subscribe to FDIC insurance, it must

A)join the Federal Reserve system.
B)be regulated by the comptroller.
C)pay an insurance premium to the FDIC.
D)All of the above are correct.

Question 29

National banks are regulated and supervised by which of the following?

A)The Fed, if the bank is also a bank holding company
B)The Comptroller of the Currency, if the bank is not a bank holding company
C)The Fed and regulators in the state in which they are chartered
D)Both a and b are correct.

Question 30

Which of the following statements is true?

A)A large number of small banks encourages competition and efficiency.
B)A few large firms would result in limited competition and ineffiency.
C)Higher profits result when more firms are in the local market.
D)All of the above are true.
E)Both a and b are true.

Question 31

The __________ was signed into law in 1927, outlawed interstate branching, and made national banks conform to the intrastate branching laws of the states in which they were located.

A)McFadden Act
B)Bank Holding Company Act (BHCA)
C)Interstate Banking and Branching Efficiency Act (IBBEA)
D)Financial Institutions Reform and Recovery Enforcement Act (FIRREA)

Question 32

The __________ was signed into law in September, 1994, and effectively allowed unimpeded nationwide branching beginning June 1, 1997 or sooner.

A)McFadden Act
B)Bank Holding Company Act (BHCA)
C)Interstate Banking and Branching Efficiency Act (IBBEA)
D)Financial Institutions Reform and Recovery Enforcement Act (FIRREA)

Question 33

The erosion and breakdown of barriers to interstate branching and various activities in the financial services industry has resulted in which of the following?

A)increased competition in the financial services industry
B)the ineffectiveness of many financial regulations
C)disagreement among regulatory authorities
D)All of the above are correct.

Question 34

A bank holding company is a corporation that owns which of the following?

A)one or two nonfinancial firms and one bank
B)several banks
C)interstate banks
D)several firms that have activities closely related to banking and at least one bank

Question 35

A bank holding company is a corporation that owns which of the following?

A)two banks
B)chain banks
C)an industrial firm
D)several firms that have activities closely related to banking and at least one bank

Question 36

Organizing as bank-holding companies has

A)allowed banks to expand into areas traditionally served by more specialized FIs.
B)resulted in more competition in the financial services industry.
C)allowed banks to get around the McFadden Act before the passage of the Interstate Banking and Branching Efficiency Act of 1994.
D)All of the above are correct.

Question 37

Which of the following is not authorized by the Gramm-Leach-Bliley (GLBA) Act of 1999?

A)The formation of financial holding companies whereby banks, security firms, insurance companies, and other financial firms can affiliate under common ownership.
B)Financial holding companies can engage in merchant banking activities.
C)Financial holding companies can engage in any other activity that the Fed determines to be financial in nature or incidental to financial activities.
D)All of the above were authorized by GLBA.

Question 38

_____________________________is the making of direct equity investments (purchasing stock) in start-up or growing nonfinancial businesses.

A)Merchant banking
B)Investment banking
C)Commercial banking
D)None of the above

Question 39

The agency of a foreign bank is a more restrictive form of operation than a foreign branch because

A)the agency can raise funds only in the wholesale and money markets.
B)the agency can accept retail deposits.
C)the foreign branch can accept retail deposits.
D)the agency can raise funds only in the wholesale and money markets and a foreign branch can accept retail deposits.

Question 40

The fact that state-chartered and nationally-chartered banks exist side by side is known as which of the following?

A)the dual banking system
B)the bank holding company system
C)the Interstate banking system
D)the Intrastate banking system

Question 41

Which banks have the largest assets?

A)national banks
B)state chartered banks
C)state chartered banks that are members of the Fed
D)national banks that are not members of the Fed but that do have deposit insurance

Question 42

If liabilities exceed the value of assets, the firm is

A)making an economic profit.
B)profitable in the short run.
C)profitable in the long run.
D)insolvent.

Question 43

The most important task of a bank's asset-liability committee is to

A)determine variable interest rates.
B)determine a bank's basic borrowing and lending strategy.
C)propose new possible assets.
D)determine the necessary cash-flow for high profit margins.

Question 44

An adjustable rate loan

A)can be used by a bank to hedge interest rate risk.
B)adjusts to household income levels.
C)shifts the interest rate risk onto the lender.
D)All of the above are correct.

Question 45

An adjustable rate loan

A)can be used by a bank to hedge interest rate risk.
B)adjusts to household income levels.
C)shifts the interest rate risk onto the borrower.
D)Both a and c are correct.

Question 46

One way for a bank to reduce interest rate risk is by making

A)long-term, fixed-rate loans while issuing short-term, variable-rate liabilities.
B)short-term, variable-rate loans, while issuing long-term, fixed-rate liabilities.
C)long-term, adjustable-rate loans while issuing short-term, variable-rate liabilities.
D)short-term, fixed-rate loans while issuing long-term, variable-rate liabilities.

Question 47

One problem with variable-rate loans is that they increase

A)default risk.
B)interest rate risk.
C)liquidity risk.
D)foreign exchange risk.

Question 48

The problem of using borrowed funds for a more risky purpose than what they were originally intended for is called which of the following?

A)asymmetrical information
B)adverse selection
C)default risk
D)moral hazard

Question 49

Which of the following may be true of nonbanks?

A)face less regulation and lower costs
B)do not face reserve requirements
C)do not have to maintain full service branches
D)All of the above may be true.

Question 50

Which of the following is false?

A)In 2007-2008, banks were experiencing extreme stress due to the financial crisis and downturn in the economy.
B)The banking industry today is very different from what it was 20 years ago in terms of the number and size of banks.
C)The interest rate on adjustable (variable) rate loans is adjusted up or down as a bank's cost of funds rises or falls.
D)Only a small portion of a bank's liabilities are payable on demand.

Question 51

Which of the following is false?

A)Almost all banks have elected to purchase deposit insurance through the FDIC because they feel it is important to offer depositors the safety and peace of mind that deposit insurance engenders.
B)A "run" on even a healthy, solvent bank can cause severe difficulties because the bank's asset portfolio may be illiquid with not enough cash or liquid assets on hand to pay off the many depositors making withdrawals.
C)Deposit insurance was first made a "full faith and credit obligation" of the federal government in 1989. Prior to that year, the FDIC was on somewhat the same footing as private insurance companies in that the federal government was not required by law to pay off depositors if the FDIC ran out of funds in the face of widespread bank failures.
D)Deposit insurance has always been a "full faith and credit obligation" of the federal government. That is why no depositor has lost any money in any account in a bank with FDIC insurance since the inception of the FDIC.

Question 52

In the past several years, changes in banking laws have resulted in which of the following?

A)significant increase in the number of banks
B)significant decrease in the number of banks
C)no change in the number of banks
D)significant decrease in the number of banks

Question 53

Since the mid 1970s, international borrowing and lending has

A)increased significantly.
B)decreased significantly.
C)decreased slightly.
D)increased significantly.

Question 54

Which of the following would be considered nonbanks?

A)finance companies
B)insurance companies
C)money market mutual funds
D)All of the above are nonbanks.

Question 55

The act that allowed banks, securities firms and insurance companies to affiliate under common ownership is which of the following?

A)the Gramm-Leach-Bliley Act of 1999
B)the Glass-Steagall Act
C)the Interstate Banking and Branching Efficiency Act
D)None of the above is correct.

Question 56

Which of the following is false?

A)State-chartered banks can, if they choose, belong to the Fed and/or subscribe to FDIC insurance.
B)Nearly all banks subscribe to FDIC insurance.
C)Although only about 30 percent have federal charters and belong to the Fed, these banks tend to be the smallest and have the most deposits and banking offices.
D)The McFadden Act outlawed interstate branching by national banks.

Question 57

Which of the following is false?

A)Banking is less regulated today than it was after the Great Depression.
B)The Glass-Steagall Act of 1933 that was enacted in response to the financial collapse in the Great Depression established interest rate ceilings that banks could charge for loans, separated investment and commercial banking, and created the FDIC.
C)Banks in the United States are chartered by either the federal government or one of the 50 state governments.
D)Federally chartered banks are called national banks and must belong to the Fed and subscribe to FDIC deposit insurance.

Question 58

With regard to Regulation Q, which of the following is false?

A)it involved interest rate ceilings for banks.
B)it set uniform and universal reserve requirements for depositories.
C)it was phased out in the early 1980s.
D)it generated financial innovation to get around it.

Question 59

Which of the following is false?

A)Merchant banking is the making of direct equity investments (purchasing stock) in start-up or growing nonfinancial businesses.
B)A financial holding company can own a bank, a securities firm, and an insurance company.
C)Financial holding companies can engage in a much broader array of financial and nonfinancial services than bank holding companies.
D)Financial holding companies have been outlawed as a result of the financial crisis of 2007-2009.

Question 60

For a financial intermediary, the excess of interest earned on loans over the interest paid to depositors and other costs is best described by which of the following?

A)negative cash flow
B)loss
C)profit
D)ineffectual management

Question 61

A banking industry with a large number of small banks competing against each other in the market would be described as competitive. This type of market structure would

A)encourage behavior beneficial to consumers.
B)be characterized by inefficiencies and fewer benefits for the public.
C)increase the likelihood of an individual bank failure because of the increased level of competition.
D)Both a and c are correct.

Question 62

The FDIC provides insurance for which of the following?

A)individual deposit accounts up to $500,000
B)individual deposit accounts up to $250,000
C)collective deposit accounts up to $500,000
D)collective deposit accounts up to $100,000

Question 63

As of 2010, most banks have decided to

A)be regulated by the comptroller of the currency.
B)join the Fed.
C)purchase deposit insurance from the FDIC.
D)be regulated by state banking authorities.

Question 64

Between 1929 and 1933, how many banks failed in the United States?

A)Over 20,000
B)Over 16,000
C)Over 11,000
D)Over 8,000

Question 65

The FDIC was created in

A)1913 by the Congress at the same time the Fed was created.
B)1933 by the Congress as a result of the banking collapse in the early years of the Great Depression.
C)1945 in the reforms put in place after World War II.
D)1980 by the Congress as part of the overall movement towards deregulation.

Question 66

The Glass-Steagall Act did all of the following except:

A)allowed interest payments on checkable deposits
B)separated commercial and investment banking
C)created the FDIC
D)established Regulation Q interest rate ceilings

Question 67

The largest number of banks have which of the following?

A)state charters
B)federal charters
C)regulation by the comptroller's office
D)None of the above are correct

Question 68

Most state banks

A)belong to the Fed and subscribe to deposit insurance.
B)do not belong to the Fed.
C)are regulated by the Fed.
D)are regulated by the comptroller's office.

Question 69

Reserve requirements for depository institutions are currently

A)smaller for state-chartered banks; this is the attraction to obtain a state charter.
B)larger for state-chartered banks; because state banks are typically smaller.
C)the same for both national and state-chartered banks.
D)varied depending upon location.

Question 70

A multi bank holding company

A)owns more than one bank.
B)owns one bank and several foreign bank offices.
C)owns several firms not related to banking and one bank.
D)None of the above is true.

Question 71

Among the following time periods, the highest level of bank failures occurred during which time frame?

A)the mid and late 1960s
B)the late 1970s
C)the mid and late 1980s
D)the early 1990s

Question 72

Approximately how many banks were there in the United States in 2008?

A)7,200
B)67,000
C)11,200
D)34,000

Question 73

Which of the following acts separated commercial and investment banking, and created the FDIC?

A)the Glass-Steagall Act
B)the Interstate Banking and Branching Efficiency Act (IBBEA)
C)the McFadden Act
D)Gramm-Leach-Bliley Act

Question 74

Which of the following acts outlawed interstate branching?

A)the Glass-Steagall Act
B)the Interstate Banking and Branching Efficiency Act (IBBEA)
C)the McFadden Act
D)the Gramm-Leach-Bliley Act

Question 75

Which of the following acts allowed banks, securities firms and insurance companies to affiliate under common ownership and to offer the public a vast array of financial services under one umbrella.

A)the Glass-Steagall Act
B)the Interstate Banking and Branching Efficiency Act (IBBEA)
C)the McFadden Act
D)the Gramm-Leach-Bliley Act

Question 76

Which of the following is false?

A)The largest number of banks are state-chartered.
B)Virtually all banks are members of the Fed.
C)The vast majority of banks have FDIC insurance.
D)Banks with national charters have more assets than banks with state charters.

Question 77

A noncompetitive industry would generally be the result of a

A)large number of competing small firms.
B)large number of competing large firms.
C)small number of large firms.
D)large number of competing medium firms.

Question 78

A competitive industry would generally be the result of which of the following?

A)a large number of competing small firms
B)a small number of competing large firms
C)a small number competing medium firms
D)All of the above could be competitive industries.

Question 79

Theoretically, competition and efficiency determine a firm's performance as measured by which of the following?

A)the quantity of goods and services they produce
B)the profitability of the firm
C)the prices they are able to charge
D)All of the above are correct.

Question 80

Which of the following is characteristic of a banking system composed of a large number of small banks?

A)The safety and soundness of the banking system would not be threatened with a few bank failures.
B)Competition would be discouraged.
C)Individual banks have a smaller risk of failure.
D)The industry would be highly non-competitive