Government Policies and Regulation

Multiple Choice Questions

1. Historically, a commercial bank was defined as a firm that:

  • accepted NOW accounts and made consumer loans.
  • accepted demand deposits and made business loans.
  • accepted government deposits and made public loans.
  • accepted demand deposits and made consumer loans.
  • is regulated by the Federal Reserve.

2. Which Act separated commercial banking, investment banking and insurance into three separate industries?

  • Glass-Steagall Act
  • Bank Holding Act
  • McFadden Act
  • Federal Reserve Act
  • Competitive Equality Banking Act

3. Which Act limited the activities a company could engage in if it owned a bank?

  • Federal Reserve Act
  • Bank Holding Act
  • McFadden Act
  • Glass-Steagall Act
  • Competitive Equality Banking Act

4. Which Act allowed the individual states to determine if a bank could branch within or outside its home state?

  • Competitive Equality Banking Act
  • Federal Reserve Act
  • McFadden Act
  • Glass-Steagall Act
  • Riegle-Neal Interstate Banking and Branching Efficiency Act

5. Which of the following is not a purpose of bank regulation?

  • Guarantee minimal profitability of the banking system.
  • Provide monetary stability.
  • Ensure safety and soundness of banks.
  • Provide a competitive financial system.
  • Protect consumers from abuses by banks.

6. A primary purpose of maintaining the safety and soundness of banks is to:

  • encourage loan growth.
  • protect depositors.
  • ensure liquidity for the stock market.
  • prevent discrimination.
  • minimize bank losses.

7. Which of the following is not represented in the CAMELS ratings.

  • Cash adequacy
  • Asset quality
  • Management quality
  • Liquidity
  • Sensitivity to market risk.

8. A formal regulatory document that prescribes corrective action for a problem institution is a:

  • cease and desist order.
  • capital request.
  • memorandum of understanding.
  • quality assurance directive.
  • national bank order.

9. A legal document that orders a firm to sop an unfair practice under full penalty of law is a:

  • cease and desist order.
  • capital request.
  • memorandum of understanding.
  • quality assurance directive.
  • national bank order.

10. A new charter to start a state bank must be obtained from the:

  • Federal Reserve.
  • Federal Deposit Insurance Corporation.
  • Office of the Comptroller of the Currency.
  • Office of Thrift Supervision.
  • State banking department.

11. A new charter to start a federal savings association is obtained from the:

  • Office of the Comptroller of the Currency.
  • National Credit Union Administration.
  • Office of Thrift Supervision.
  • State banking department.
  • Federal Reserve

12. National and state charters are available for all of the following except:

  • credit unions.
  • commercial banks.
  • savings associations.
  • Federal Reserve banks.
  • National and state charters are available for all of the above.

13. The primary federal regulator of state banks that are not members of the Fed is the:

  • FDIC.
  • Office of the Comptroller of the Currency.
  • Office of Thrift Supervision.
  • state banking department.
  • National Credit Union Administration.

14. The primary federal regulator of state banks that are members of the Fed is the:

  • Resolution Trust Corporation
  • Federal Reserve
  • Office of the Comptroller of the Currency
  • State Banking Authorities.
  • Federal Deposit Insurance Corporation.

15. Savings and loans have historically specialized in:

  • commercial loans.
  • auto loans.
  • mutual loan.
  • real estate loans.
  • demand deposit accounts.

16. Commercial banks mostly specialize in:

  • mortgages.
  • mutual loans.
  • short-term business credit.
  • savings accounts.
  • share draft accounts.

17. Savings institutions must maintain what percent of their assets in housing-related assets to be considered a “Qualified Thrift Lender”?

  • 100%
  • 15%
  • 70%
  • 85%
  • 65%

18. Many insurance companies have organized as a _____________ in order to own a depository institution and bypass prohibitions in the Glass-Steagall Act and the Bank Holding Company Act.

  • unitary thrift holding company
  • commercial bank
  • mortgage company
  • savings bank
  • credit union

19. Which of the following institutions’ customers have a “common bond”?

  • credit union
  • commercial bank
  • mortgage company
  • savings bank
  • thrift

20. Originally, the FDIC insured deposits up to:

  • $100,000
  • $50,000
  • $25,000
  • $10,000
  • $5,000

21. Which of the following is not a component of the Farm Credit System?

  • Farm Credit Banks
  • Agricultural Credit Associations
  • Federal Land Credit Associations
  • Farm Credit Administration
  • Agricultural Lending Office

22. Which of the following officially designates a bank as insolvent?

  • Office of the Comptroller of the Currency
  • Federal Reserve
  • Office of Thrift Supervision
  • Office of National Charters
  • Resolution Trust Corporation

23. Which of the following is the receiver of a failed depository institution?

  • Federal Reserve
  • Federal Deposit Insurance Corporation
  • Office of the Comptroller of the Currency
  • Office of Thrift Supervision
  • Federal Savings and Loan Insurance Corporation

24. The Federal Deposit Insurance Reform Act of 2005 created which of the following?

  • Bank Insurance Fund
  • Deposit Insurance Fund
  • Savings Association Insurance Fund
  • National Credit Union Shares Insurance Fund
  • Federal Savings and Loan Insurance Fund

25. Bank regulations:

  • can prevent bank failures.
  • can eliminate economic risk for banks.
  • serve as guidelines for sound operating policies.
  • guarantee bankers will make sound management decisions.
  • guarantee bankers act in an ethical manner.

26. Which of the following is not a fundamental function of the Federal Reserve?

  • Conduct the nation’s monetary policy.
  • Provide an effective payments system.
  • Regulate banking operations.
  • Ensure bank profitability.
  • All of the above are fundamental functions of the Federal Reserve.

27. The Federal Reserve has Reserve Banks and branches in ___ districts across the country.

  • 10
  • 12
  • 14
  • 16
  • 18

28. Which of the following is not one of the Fed’s monetary policy tools?

  • Open market operations
  • Changes in the fed funds rate
  • Changes in the discount rate
  • Changes in the required reserve ratio
  • All of the above are monetary policy tools of the Fed

29. Which of the following is the most flexible of the Fed’s tools for implementing monetary policy?

  • Changes in the fed funds rate
  • Changes in the required reserve ratio
  • Changes in the discount rate
  • Open market operations
  • Private placements

30. Currently, the Fed sets the discount rate __________ the target fed funds rate.

  • 1% – 1.5% below
  • 2% – 2.5% below
  • 3% – 3.5% above
  • 2% – 2.5% above
  • 1% – 1.5% above

31. Which of the following allows depository institutions to borrow for a fixed term against a variety of collateral that is normally accepted for discount window loans?

  • Term Auction Facility
  • Term Securities Lending Facility
  • Primary Dealer Credit Facility
  • Troubled Asset Relief Program
  • Housing and Economic Recovery Facility

32. Which of the following loans Treasury securities to primary dealers in exchange for other securities held by the dealers?

  • Term Auction Facility
  • Term Securities Lending Facility
  • Primary Dealer Credit Facility
  • Troubled Asset Relief Program
  • Housing and Economic Recovery Facility

33. Which of the following is an overnight collateralized loan facility that provides loans for up to 120 days to primary dealers in exchange for a broad range of collateral?

  • Term Auction Facility
  • Term Securities Lending Facility
  • Primary Dealer Credit Facility
  • Troubled Asset Relief Program
  • Housing and Economic Recovery Facility

34. Which type of financial institution has seen the largest drop in their share of U.S. financial assets?

  • Depository institutions
  • Mutual funds
  • Insurance companies
  • Pension plans
  • Finance companies

35. Federal Reserve Reg. ____ makes it illegal for any lender to discriminate on the basis of national origin.

  • AA
  • BB
  • Z
  • C
  • B

36. Federal Reserve Reg. ____ requires disclosure of as to why a costumer was denied credit.

  • AA
  • BB
  • Z
  • C
  • B

37. Which of the following was a goal of the Depository Institutions Deregulation and Monetary Control Act of 1980?

  • To reduce the range of banking services offered.
  • To allow banks to pay market rates on deposits.
  • To allow banks to make long-term mortgage loans.
  • To allow banks to offer Money Market Deposit Accounts.
  • To reduce the number of leveraged buyouts.

38. The _________ authorized money market deposit accounts.

  • Depository Institutions Act  (Garn-St. Germain)
  • Competitive Equality Banking Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Federal Deposit Insurance Corporation Improvement Act
  • Depository Institutions Deregulation and Monetary Control Act

39. The _________ expanded the FDIC’s authority for open bank assistance.

  • Depository Institutions Act  (Garn-St. Germain)
  • Competitive Equality Banking Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Federal Deposit Insurance Corporation Improvement Act
  • Depository Institutions Deregulation and Monetary Control Act

40. The _________ created the Office of Thrift Supervision.

  • Depository Institutions Act  (Garn-St. Germain)
  • Competitive Equality Banking Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Federal Deposit Insurance Corporation Improvement Act
  • Depository Institutions Deregulation and Monetary Control Act

41. The _________ mandated that the FDIC take prompt corrective action in dealing with bank failures.

  • Depository Institutions Act  (Garn-St. Germain)
  • Competitive Equality Banking Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Federal Deposit Insurance Corporation Improvement Act
  • Depository Institutions Deregulation and Monetary Control Act

42. FASB 115 requires historical costs to be used for:

  • trading account securities.
  • available-for-sale securities.
  • retained earnings.
  • held-to-maturity securities.
  • net income.

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

  • Riegle-Neal Interstate Banking and Branching Efficiency Act
  • Competitive Equality Banking Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Federal Deposit Insurance Corporation Improvement Act
  • Depository Institutions Deregulation and Monetary Control Act

44. The _________ requires disclosure of a bank’s privacy policy.

  • Riegle-Neal Interstate Banking and Branching Efficiency Act
  • Gramm-Leach-Bliley Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Federal Deposit Insurance Corporation Improvement Act
  • Depository Institutions Deregulation and Monetary Control Act

45. The _________ repealed the Glass-Steagall Act.

  • Riegle-Neal Interstate Banking and Branching Efficiency Act
  • Gramm-Leach-Bliley Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Federal Deposit Insurance Corporation Improvement Act
  • Depository Institutions Deregulation and Monetary Control Act

46. The _________ established to Public Company Oversight Board to regulate public accounting firms that audit publicly-traded companies.

  • Riegle-Neal Interstate Banking and Branching Efficiency Act
  • Competitive Equality Banking Act
  • Financial Institutions Reform, Recovery and Enforcement Act
  • Sarbanes-Oxley Act
  • Depository Institutions Deregulation and Monetary Control Act

47. _________ allowed any institution to “truncate” the paper check at any point in the check clearing process.

  • Riegle-Neal Interstate Banking and Branching Efficiency Act
  • Fair and Accurate Credit Transactions Act
  • Troubled Asset Relief Program
  • Sarbanes-Oxley Act
  • Check 21 Act

48. The _________ created a fund originally designed to allow the U.S. Treasury to purchase distressed assets from financial institutions.

  • Capital Purchase Program
  • Foreclosure Prevention Act
  • Troubled Asset Relief Program
  • Primary Dealer Credit Facility
  • Check 21 Act

49. The _________ authorized the Treasury to purchase debt securities issued by the Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and to purchase common stock.

  • Treasury Emergency Authority Provisions
  • Foreclosure Prevention Act
  • Troubled Asset Relief Program
  • Primary Dealer Credit Facility
  • Check 21 Act

50. Which of the following statements is/are correct?

  • Higher capital requirements often result in a higher cost of capital for banks.
  • Small banks have greater access to the equity markets than large banks.
  • Higher capital requirements encourage small banks to consolidate into larger banks.
  • All of the above are correct.
  • Only a. and c. are correct.

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