Deck 2: The Impact of Government Policy and Regulation on the Financial-Services Industry

Question 1

The ________________________ is the law that states that a bank must get federal approval in order to combine with another bank.

Answer 1

Bank Merger Act

Question 2

The first major federal banking law in the U.S.was the _________________________.This law was passed during the Civil War and set up a system for chartering new national banks through the OCC.

Answer 2

National Bank Act

Question 3

The __________________________ allows adequately capitalized and managed bank holding companies to acquire banks anywhere in the United States.However,no one bank can control more than 30 percent of the deposits in any one state (unless the state waives this restriction)or more than 10 percent of the deposits across the country.

Answer 3

Riegle-Neal Interstate Banking and Branching Efficiency Act

Question 4

The _____________________ Act prohibits banks and publicly owned firms from publishing false or misleading financial performance information.

Question 5

The __________________________ brought bank holding companies under the jurisdiction of the Federal Reserve.

Question 6

The _____________________ was created as part of the Glass-Steagall Act.In the beginning it insured deposits up to $2,500.

Question 7

The _________________________ was passed during the Great Depression.It separated investment and commercial banks and created the FDIC.

Question 8

The _____________________________ is the center of authority and decision making within the Federal Reserve.It consists of seven members appointed by the president for terms not exceeding 14 years.

Question 9

The _________________ requires selected financial institutions to report suspicious activity in customer accounts to the Treasury Department.

Question 10

The McFadden Act and the Douglas amendment which prevented banks from crossing state lines were later repealed by the _______________________________.

Question 11

The __________________________ was created in 1913 in response to a series of economic depressions and failures.Its principal role is to serve as the lender of last resort and to stabilize the financial markets.

Question 12

The central bank of the new European Union is known as the ______________________.

Question 13

One of the main roles of the Federal Reserve today is ________________.They have three tools that they use today to carry out this role: open market operations,the discount rate,and legal reserve requirements.

Question 14

The ___________________________ allows well-managed and well-capitalized banking companies with satisfactory CRA ratings to affiliate with insurance companies and securities firms either through a financial holding company or through a subsidiary firm owned by a bank.

Question 15

The policy of FDIC to levy fixed insurance premiums regardless of the risk involved,led to a/an _____________ problem among banks.The fixed premiums encouraged banks to accept greater risk.

Question 16

One tool that the Federal Reserve uses to control the money supply is ________________.The Federal Reserve will change the interest rate they charge for short-term loans when they are using this tool of monetary policy.

Question 17

In 1980,the __________________________ was passed,which lifted U.S government ceilings on deposit interest rates in favor of free-market interest rates.

Question 18

One tool that the Federal Reserve uses to control the money supply is ________________.The Federal Reserve will buy and sell T-bills,bonds,notes,and selected federal agency securities when they are using this tool of monetary policy.

Question 19

Customers of financial-service companies may _____________________ of having their private information shared with a third party,such as a telemarketer.However,in order to do this,they must tell the financial-services company in writing that they do not want their personal information shared with outside parties.

Question 20

The federal bank regulatory agency which examines the most banks is the _____________.

Question 21

The _____________________ makes it faster and less costly for banks to clear checks.It allows for banks to electronically send check images instead of shipping paper checks across the country.

Question 22

The term "regulatory dialectic" refers to the dual system of banking regulation in the United States and selected other countries where both the federal or central government and local governments regulate banks.

Question 23

The main regulators of insurance companies are ____________________________.

Question 24

The federal law that states individuals and families cannot be denied a loan merely because of their age,sex,race,national origin,or religious affiliation is known as the Competitive Equality in Banking Act.

Question 25

National banks cannot merge without the prior approval of the Comptroller of the Currency.

Question 26

Federal Credit Unions are regulated and examined by _________________________________.

Question 27

The 1994 Federal Interstate Banking bill does not limit the percentage of statewide or nationwide deposits that an interstate banking firm is allowed to control.

Question 28

When the Federal Reserve buys T-bills through its open market operations,it causes the growth of bank deposits and loans to decrease.

Question 29

The moral hazard problem of banks is caused by the fixed insurance premiums paid by banks which make them accept greater risk.

Question 30

The Bank Merger Act and its amendments require that Bank Holding Companies be under the jurisdiction of the Federal Reserve.

Question 31

The Federal Reserve changes reserve requirements frequently because the effect of these changes is small.

Question 32

The _____________________________________ was created by the National Bank Act and is part of the Treasury Department.It is the primary regulator of national banks.

Question 33

When the Federal Reserve increases the discount rate,it generally causes other interest rates to decrease.

Question 34

Under the terms of the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act,adequately capitalized and managed bank holding companies can acquire a bank anywhere inside the United States.

Question 35

The _________________________ proposes various regulations applying to the financial markets to combat the recent credit crisis.This "bail-out" bill granted the US Treasury the means to purchase troubled loans,allowed the FDIC to temporarily increase deposit insurance,and permitted the government to inject additional capital into the banking system.

Question 36

Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation.

Question 37

The ___________________________________ makes it easier for victims of identity theft to file a theft report with the Federal Trade Commission and allows the public to apply for a free credit report once a year from the national credit bureaus.

Question 38

Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk.

Question 39

In the United States,fixed fees charged for deposit insurance,regardless of how risky a bank is,led to a problem known as moral hazard.

Question 40

The Truth in Lending (or Consumer Credit Protection)Act was passed by the U.S.Congress to outlaw discrimination in providing bank services to the public.

Question 41

Of the principal reasons for regulating banks,what was the primary purpose of the Federal Reserve Act of 1913?

A)Establishment of a network to clear and collect checks
B)Control of the money supply
C)Preventing banks from realizing monopoly powers
D)Ensuring an adequate and fair supply of loans
E)None of the options are correct.

Question 42

The law which lifted government deposit interest ceilings in favor of competitive interest rates is:

A)the National Bank Act.
B)the Glass-Steagall Act.
C)the Bank Merger Act.
D)the Depository Institutions Deregulation and Monetary Control Act.
E)None of the options are correct.

Question 43

The law that set up the federal banking system and provided for the chartering of national banks was the:

A)National Bank Act.
B)McFadden Act.
C)Glass-Steagall Act.
D)Bank Merger Act.
E)Federal Reserve Act.

Question 44

One of the principal reasons for government regulation of financial firms is to protect the safety and soundness of the financial system.

Question 45

Which of the following is an unresolved issue in the new century?

A)What should be done about the regulatory safety net set up to protect small depositors?
B)If financial institutions are allowed to take on more risk,how can taxpayers be protected from paying the bill when more institutions fail?
C)Does functional regulation actually work?
D)Should regulators allow the mixing of banking and commerce?
E)All of these are unresolved issues

Question 46

Passed in 1977,the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live.

Question 47

The Sarbanes-Oxley Act allows banks,insurance companies,and securities firms to form Financial Holding Companies (FHCs).

Question 48

The Federal Reserve policy tool under which the Fed attempts to bring psychological pressure to bear on individuals and institutions to conform to the Fed's policies using letters,phone calls,and speeches is known as:

A)margin requirement.
B)moral suasion.
C)discount window supervision.
D)conference and compromise.
E)None of the options are correct.

Question 49

The federal law that prohibited federally supervised commercial banks from offering investment banking services on privately issued securities is known as:

A)the Glass-Steagall Act.
B)the Bank Merger Act.
C)the Depository Institutions Deregulation and Monetary Control Act.
D)the Federal Reserve Act.
E)None of the options are correct.

Question 50

The 1994 law that allowed bank holding companies to acquire banks anywhere in the U.S.is:

A)the Glass-Steagall Act.
B)the Federal Deposit Insurance Corporation Improvement Act.
C)the National Bank Act.
D)the Riegle-Neal Interstate Banking and Branching Efficiency Act.
E)None of the options are correct.

Question 51

Banks are regulated for which of the reasons listed below?

A)Banks are leading repositories of the public's savings.
B)Banks have the power to create money.
C)Banks provide businesses and individuals with loans that support consumption and investment spending.
D)Banks assist governments in conducting economic policy,collecting taxes,and dispensing government payments.
E)All of the options are correct.

Question 52

The law that allows banks to affiliate with insurance companies and securities firms to form financial services conglomerates is:

A)the National Bank Act.
B)the Glass-Steagall Act.
C)the Garn-St Germain Depository Institutions Act.
D)the Riegle-Neal Interstate Banking Act.
E)the Gramm-Leach-Bliley Act (Financial Services Modernization Act).

Question 53

The Gramm-Leach-Bliley Act of 1999 essentially repeals the Glass-Steagall Act passed in the 1930s.

Question 54

Of the principal reasons for regulating banks,what was the primary purpose of the National Banking Act (1863)?

A)Separation of commercial and investment banking
B)Separation of commercial banking and insurance activities
C)Chartering new banks and examining existing ones
D)Establishment of a network to clear and collect checks
E)Preventing banks from realizing monopoly powers

Question 55

Of the principal reasons for regulating banks,what was the primary purpose of the Consumer Credit Protection Act?

A)Establish a network to clear and collect checks
B)Control of the money supply
C)Prevent banks from realizing monopoly powers
D)Ensure that customers are aware of their rights and responsibilities under a loan agreement
E)None of the options are correct.

Question 56

The National Bank Act (1863-64)created the Federal Reserve which acts as the lender of last resort.

Question 57

The Financial Institutions Reform,Recovery,and Enforcement Act (1989)allowed bank holding companies to acquire nonbank depository institutions and,if desired,convert them into branch offices.

Question 58

An institutional arrangement in which federal and state authorities both have significant bank regulatory powers is referred to as:

A)balance of power.
B)federalism.
C)dual banking system.
D)cooperative regulation.
E)coordinated control.

Question 59

The Gramm-Leach-Bliley Act (Financial Services Modernization Act)calls for linking the government supervision of the financial-services firm to the types of activities that the firm undertakes.For example,the insurance portion of the firm would be regulated by state insurance commissions and the banking portion of the firm would be regulated by banking regulators.This approach to government supervision of financial services is known as:

A)consolidated regulation and supervision.
B)functional regulation.
C)government reregulation.
D)umbrella supervision and regulation.
E)None of the options are correct.

Question 60

The tool used by the Federal Reserve System to influence the economy and behavior of banks is known as moral hazard.

Question 61

Which federal banking act prohibits publishing false or misleading information about the financial performance of a public company and requires top corporate officers to vouch for the accuracy of their company's financial statements?

A)The Sarbanes-Oxley Act
B)The USA Patriot Act
C)The Check 21 Act
D)The Fair and Accurate Credit Transactions Act
E)The Bankruptcy Abuse Prevention and Consumer Protection Act

Question 62

The oldest federal bank agency is the:

A)Office of the Comptroller of the Currency.
B)Federal Deposit Insurance Corporation.
C)Federal Reserve System.
D)state banking commission.
E)state insurance commission.

Question 63

Which federal banking act forces more individuals to repay at least part of what they owe and will push higher-income borrowers into more costly forms of bankruptcy?

A)The Sarbanes-Oxley Act
B)The USA Patriot Act
C)The Check 21 Act
D)The Fair and Accurate Credit Transactions Act
E)The Bankruptcy Abuse Prevention and Consumer Protection Act

Question 64

There is an important debate raging today regarding whether banks should be regulated at all.George Benston contends that:

A)firms in regulated industries actually seek out regulations because they bring monopolistic rents.
B)regulations shelter firms from changes in demand and cost,lowering its risk.
C)regulations can increase consumer confidence which increases customer loyalty to regulated firms.
D)depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges.
E)None of the above options are correct.

Question 65

One of the earliest theories regarding the impact of regulation on banks was developed by George Stigler.He contends that:

A)firms in regulated industries actually seek out regulations because they bring monopolistic rents.
B)regulations shelter firms from changes in demand and cost,lowering its risk.
C)regulations can increase consumer confidence which increases customer loyalty to regulated firms.
D)depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges.
E)None of the options are correct.

Question 66

The act which requires financial institutions to share information about customer identities with government agencies is:

A)the Sarbanes-Oxley Act.
B)the National Banking Act.
C)the Garn-St Germain Depository Institutions Act.
D)the USA Patriot Act.
E)the Gramm-Leach-Bliley Act.

Question 67

As per the Gramm-Leach-Bliley Act,one of the ways through which a banking-insurance-securities affiliation can take place is through:

A)a financial holding company.
B)the state insurance commissions.
C)the European Central Bank.
D)a financial service corporation.
E)a financial modernization organization.

Question 68

The 1977 act that prevents banks from "redlining" certain neighborhoods,refusing to serve those areas is:

A)the National Banking Act.
B)the Garn-St.Germain Act.
C)the Financial Institutions Reform,Recovery and Enforcement Act.
D)the Riegle-Neal Interstate Banking and Branching Efficiency Act.
E)the Community Reinvestment Act.

Question 69

The equivalent of the Federal Reserve System in Europe is known as the:

A)European Union.
B)Bank of London.
C)European Council.
D)European Central Bank.
E)Swiss Bank Corporation.

Question 70

The federal agency that regulates the most banks is the:

A)Office of the Comptroller of the Currency.
B)Federal Deposit Insurance Corporation.
C)Federal Reserve System.
D)state banking commission.
E)state insurance commission.

Question 71

Which federal banking act requires the Federal Trade Commission to make it easier for victims of identity theft to file theft reports and requires credit bureaus to help victims resolve the problem?

A)The Sarbanes-Oxley Act
B)The USA Patriot Act
C)The Check 21 Act
D)The Fair and Accurate Credit Transactions Act
E)The Bankruptcy Abuse Prevention and Consumer Protection Act

Question 72

The law that made bank and nonbank depository institutions more alike in the services they could offer and allowed banks and thrifts to more fully compete with other financial institutions is:

A)the National Banking Act.
B)the Federal Reserve Act.
C)the Garn-St Germain Depository Institutions Act.
D)the Riegle-Neal Interstate Banking and Branching Efficiency Act.
E)the Gramm-Leach-Bliley Act (Financial Services Modernization Act).

Question 73

Which federal banking act requires that financial service providers establish the identity of customers opening new accounts?

A)the Sarbanes-Oxley Act
B)the USA Patriot Act
C)the Check 21 Act
D)the Fair and Accurate Credit Transactions Act
E)the Bankruptcy Abuse Prevention and Consumer Protection Act

Question 74

The European Central Bank has the main goal of:

A)ensuring that commercial and investment banks are separated.
B)keeping unemployment low.
C)ensuring price stability.
D)ensuring an adequate and fair supply of loans.
E)All of the above options are correct.

Question 75

Samuel Peltzman had a different view to George Stigler on the impact of regulation on banks.He contends that:

A)firms in regulated industries actually seek out regulations because they bring monopolistic rents.
B)regulations shelter firms from changes in demand and cost,lowering its risk.
C)regulations can increase consumer confidence which increases customer loyalty to regulated firms.
D)depository institutions should be regulated no differently than any other corporation with no subsidies or special privileges.
E)None of the options are correct.

Question 76

The _________ allows adequately capitalized bank holding companies to acquire banks in any state.

A)Riegle-Neal Interstate Banking and Branching Efficiency Act
B)Competitive Equality Banking Act
C)Financial Institutions Reform,Recovery and Enforcement Act
D)Federal Deposit Insurance Corporation Improvement Act
E)Depository Institutions Deregulation and Monetary Control Act

Question 77

Which federal banking act reduces the need for banks to transport paper checks across the country?

A)The Sarbanes-Oxley Act
B)The USA Patriot Act
C)The Check 21 Act
D)The Fair and Accurate Credit Transactions Act
E)The Bankruptcy Abuse Prevention and Consumer Protection Act

Question 78

The act that allowed bank holding companies to acquire nonbank depository institutions and convert them to branches is:

A)the National Banking Act.
B)the Garn-St Germain Act.
C)the Financial Institutions Reform,Recovery and Enforcement Act.
D)the Riegle-Neal Interstate Banking and Branching Efficiency Act.
E)None of the options are correct.

Question 79

The fastest growing financial crime in the U.S.is:

A)financial statement misrepresentation.
B)bank robberies.
C)individual privacy violations.
D)credit card fraud.
E)identity theft.

Question 80

Common minimum capital requirements on banks in leading industrialized nations that are based on the riskiness of their assets is imposed by:

A)the National Banking Act.
B)the Financial Institutions Reform,Recovery and Enforcement Act.
C)the International Banking Act.
D)the Basel Agreement.
E)None of the options are correct.