Deck 17: The Impact of Deregulation and Regulation on Financial Institutions and Banking Industry in the United States

Question 1

Regulation of financial institutions seeks to protect the small saver because he or she may lack the financial expertise and access to quality information needed to correctly judge the true condition of a financial institution.

Answer 1

True

Question 2

Loss of public confidence in the financial system would slow the growth of the economy.

Answer 2

True

Question 3

The creation of money is closely associated with inflation.

Answer 3

True

Question 4

The regulation of money creation has become a key objective of government activity in the financial sector.

Question 5

Regulation is often justified as the most direct way to aid so-called "disadvantaged" sectors of the economy, such as new home buyers, farmers and small businesses.

Question 6

Governments frequently regulate financial institutions to assure that financial services needed by governments will continue to be provided.

Question 7

Governments willing to impose sufficiently strict regulations can completely remove risk for savers.

Question 8

There are no absolutely irrefutable arguments justifying the regulation of financial institutions.

Question 9

Prior to the credit crisis of 2007-2009, there was a trend toward gradually allowing private markets to discipline risk-taking by financial institutions and minimize the role of government.

Question 10

Deregulation could bring about decreased profits for financial institutions.

Question 11

Deregulation of a financial service industry could usher in greater risk and lead to more business bankruptcies.

Question 12

The regulatory dialectic concept states that regulation of financial-service companies tends to lead to innovations in new services and to financial institutions aggressively looking for ways to lower their operating costs.

Question 13

Regulation tends to result in an increased market share for the regulated industry and a smaller market share for unregulated firms offering the same products or services.

Question 14

In the United States banking is more heavily regulated than is true in most other industrialized countries.

Question 15

Most banks in the United States are subject to multiple regulatory jurisdictions.

Question 16

Supervision of foreign banks operating in the United States is vested in the Office of the Comptroller of the Currency; a part of the U.S. Treasury Department.

Question 17

Reserve requirements on deposits held by all depository institutions in the U.S. are set by the FDIC.

Question 18

In the U.S. each depositor is limited to a maximum of $100,000 in federal deposit insurance coverage for all of his or her deposits, both ordinary and retirement accounts, at an insured depository institution.

Question 19

One of the most important functions of the FDIC is to act as a check on state banking commissions.

Question 20

The FDIC examines insured banks that are not members of the Federal Reserve System.

Question 21

The FDIC acts as receiver for all failed national banks in the U.S., but not for failed state-chartered banks who usually have a private receiver appointed by the state banking commission.

Question 22

All banks in the United States today pay the same insurance fees.

Question 23

One major concern with the recent bailouts of large financial institutions (as well as other non-financial companies) is that they continue to take on excessive risks under the assumption that they will be bailed out again in the future.

Question 24

Bank holding companies in the United States can acquire finance companies and mortgage banking companies but not savings and loan associations.

Question 25

Bank mergers cannot be approved in the U.S. even if competition is only slightly damaged.

Question 26

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 increases the punishment on credit card defaults by card holder.

Question 27

Compared to branching holding companies are considered to be an expensive way for banking organizations to reach into new markets.

Question 28

Under the terms of the Riegle-Neal Interstate Banking Act an individual state can block interstate branching, but not interstate acquisitions of banks by bank holding companies.

Question 29

Bank holding companies in the U.S. can set up a subsidiary to offer discount brokerage services to customers, but not full-service security brokerage services.

Question 30

Banking companies in the United States are allowed to underwrite and distribute mutual fund shares to their customers.

Question 31

As a result of a recent Supreme Court ruling national banks are permitted to market annuities.

Question 32

A bank covered by the terms of the Basle Agreement can count tier two items as meeting its capital requirements only up to the amount of its tier one capital.

Question 33

In the U.S. a bank that holds more than the required minimum amounts of capital is allowed to expand its services and service facilities with few or no regulatory restrictions.

Question 34

The FDIC Improvement Act requires riskier, inadequately capitalized U.S. banks to pay higher deposit insurance fees.

Question 35

Capital limits how fast each financial institution can grow.

Question 36

In the United States most credit unions have state charters rather than federal charters.

Question 37

Credit union deposits are insured up to $100,000 by the FDIC.

Question 38

Savings and loan associations can borrow emergency funds from the Federal Home Loan banks but not from the Federal Reserve Banks.

Question 39

The law that prohibited savings and loans from purchasing junk bonds was the FDIC Improvement Act.

Question 40

The FDIC Improvement Act allows federal regulators to close a bank or thrift institution if its ratio of tangible equity capital to total assets falls below two percent for more than 90 days.

Question 41

SAIF has reached the insurance coverage goal mandated by the U.S. Congress in the Financial Institutions Reform, Recovery and Enforcement Act.

Question 42

Savings banks are not permitted to convert from mutual to stockholder form in the United States, but savings and loans can do so with federal regulatory agency approval.

Question 43

Money market fund investments must be made, 95 percent or higher, in top-quality (top-credit-rated) securities.

Question 44

Insurance companies are regulated primarily by the federal government and not the states.

Question 45

The terms of policies sold by insurance companies must be approved by state insurance commissions.

Question 46

Penny Benny currently has a large surplus balance in its insurance reserve.

Question 47

Under U.S. law Penny Benny must insure all defined-contribution pension plans.

Question 48

According to the textbook the ultimate impact of regulation is to restrict the entry of new competitors, raise financial-service prices and reduce the likelihood of institutional failures.

Question 49

Penny Benny has no legal authority to regulate pension funds in the United States.

Question 50

Investment companies are regulated mainly by the Securities and Exchange Commission (SEC) in the United States.

Question 51

The SEC is governed by five commissioners who are appointed by the President of the United States for five-year terms.

Question 52

Commercial banks are not allowed to sell mutual fund shares in the same physical area as they sell deposits, for fear of taking stable deposits out of the banking system.

Question 53

A banks' poor or mediocre Community Reinvestment Act (CRA) record could be held against it by community activists if the bank needed regulatory approval for a merger or acquisition.

Question 54

The Financial Services Modernization (Gramm-Leach-Bliley) Act allows commercial banks to affiliate with insurance companies and investment banks by creating financial-services holding companies (FHCs).

Question 55

While money market mutual funds have no government deposit insurance, some do carry private deposit insurance.

Question 56

In today's largest security-dominated financial systems, the banks in those countries also enjoy the widest regulatory latitude with respect to service activities and product offerings.

Question 57

When a corporation's "insiders" buy or sell that firm's securities, it must be reported to the Comptroller of the Currency.

Question 58

Each business affiliated with a financial holding company is regulated and supervised by its traditional functional regulator.

Question 59

The stress tests of large banks highlighted in Basel II were performed ahead of schedule to the recent credit crisis of 2007-2009.

Question 60

The US deposit insurance limit was set in 1980 and there have been recent calls to raise the deposit insurance limit from the current $200,000.

Question 61

The Federal Deposit Insurance Reform Act of 2005 allows the boards of the FDIC and the National Credit Union Administration (NCUA) starting in 2010 to adjust deposit insurance coverage for inflation every five years, rounding to the nearest $10,000.

Question 62

The maximum insurance limit on qualified retirement deposits was raised from $100000 to $500,000.

Question 63

The Bank Insurance Fund, BIF and Savings Association Insurance Fund, SAIF were merged into one entity, the Deposit Insurance Fund (DIF).

Question 64

Regulation of financial institutions is usually justified by governments because of a need to:

A) Protect the small saver
B) Promote public confidence in the financial system
C) Ensure equal opportunity and fairness in the public's access to financial services
D) Control the creation and growth of money
E) All of the above

Question 65

The creation of money is closely associated with:

A) Inflation
B) Productivity of labor
C) Technological change
D) All of the above
E) None of the above

Question 66

The most regulated of all financial institutions typically are:

A) Security dealers
B) Pension funds
C) Insurance companies
D) Mutual funds
E) None of the above

Question 67

Charters for new national banks in the United States are issued by the:

A) Federal Reserve System
B) Federal Deposit Insurance Corporation
C) Comptroller of the Currency
D) Department of Justice
E) None of the above

Question 68

The activities of U.S. banks overseas are regulated and supervised by the:

A) Comptroller of the Currency
B) Federal Deposit Insurance Corporation
C) Federal Reserve System
D) Agency for International Development
E) None of the above

Question 69

All bank holding company activities in the United States are regulated and examined by the:

A) Federal Reserve System
B) Comptroller of the Currency
C) Federal Deposit Insurance Corporation
D) Securities and Exchange Commission
E) None of the above

Question 70

A national bank is declared insolvent and closed in the United States by the:

A) Federal Deposit Insurance Corporation
B) Comptroller of the Currency
C) Federal Reserve System
D) Securities and Exchange Commission
E) None of the above

Question 71

Under the terms of the FDIC Improvement Act of 1991 the goal of the FDIC is to have a pool of insurance reserves backing the deposits of federally insured banks and thrifts that equals at least ____ percent of all insured deposits.

A) 10
B) 20
C) 25
D) 50
E) None of the above

Question 72

The ____ brought foreign banks operating in the U.S. under federal regulation for the first time.

A) Federal Reserve Act
B) Glass-Steagall Act
C) International Banking Act
D) Gramm-Leach-Bliley Act
E) None of the above

Question 73

The ____ allowed national banks to set up branch offices throughout their home state if state law permitted state-chartered banks to do the same.

A) National Bank Act
B) Glass-Steagall Act
C) Bank Holding Company Act
D) Depository Institutions Deregulation and Monetary Control Act
E) None of the above

Question 74

According to the ____ the U.S. Congress stipulated that no bank holding company could acquire more than 5 percent of the voting stock of banks located outside its home state without express permission from the state entered.

A) Glass-Steagall Act
B) Bank Merger Act
C) Douglas Amendment
D) Depository Institutions Deregulation and Monetary Control Act
E) Riegle-Neal Interstate Banking Act

Question 75

According to the ____ nonbank businesses acquired by bank holding companies must be "closely related to banking."

A) National Bank Act
B) Bank Holding Company Act of 1956
C) 1970 Amendments to the Bank Holding Company Act
D) Glass-Steagall Act
E) Riegle-Neal Interstate Banking Act

Question 76

The ____ permitted bank holding companies to acquire savings and loan associations and savings banks within each state and across state lines.

A) Financial Institutions Reform, Recovery and Enforcement Act of 1989
B) Riegle-Neal Interstate Banking Act
C) Gramm-Leach-Bliley Act
D) Glass-Steagall Act
E) Depository Institutions Deregulation and Monetary Control Act

Question 77

A single banking organization operating in the United States can acquire no more than ____ percent of nationwide deposits.

A) 10
B) 20
C) 25
D) 30
E) None of the above

Question 78

The first banking organization in the U.S. granted the power to underwrite corporate stock issues in the period after passage of the Glass-Steagall Act was:

A) Chemical Bank
B) Bankers Trust Company
C) Bank of America
D) J. P. Morgan
E) None of the above

Question 79

The public disclosure of interest earned and fees charged on deposit services was mandated in the U.S. by passage of the:

A) Truth in Lending Act of 1968
B) Truth in Savings Act of 1991
C) Home Mortgage Disclosure Act of 1975
D) Equal Credit Opportunity Act of 1975
E) None of the above

Question 80

According to the ____ bankers must make an affirmative effort to serve all segments of their trade territory and disclose to the public their community service performance ratings.

A) Equal Credit Opportunity Act of 1975
B) Truth in Lending Act of 1968
C) Community Reinvestment Act of 1977
D) FDIC Improvement Act of 1991
E) None of the above