39) The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 included
A) abolishing the Federal Home Loan Bank Board and the FSLIC.
B) transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift
Supervision, a bureau within the U.S. Treasury Department.
C) expanding the responsibilities of the FDIC, which is now the sole administrator of the federal
deposit insurance system.
D) all of the above.
E) only A and B of the above.
40) The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 included
A) abolishing the Federal Home Loan Bank Board and the FSLIC.
B) transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift
Supervision, a bureau within the U.S. Treasury Department.
C) establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed
in conservatorship or receivership.
D) all of the above.
E) only A and B of the above.
41) The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 included
A) transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift
Supervision, a bureau within the U.S. Treasury Department.
B) expanding the responsibilities of the FDIC, which is now the sole administrator of the federal
deposit insurance system.
C) establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed
in conservatorship or receivership.
D) all of the above.
E) only A and B of the above.
42) The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 included
A) expanding the responsibilities of the FDIC, which is now the sole administrator of the federal
deposit insurance system.
B) establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed
in conservatorship or receivership.
C) directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance.
D) all of the above.
E) only A and B of the above.
43) The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 included
A) reducing the regulatory responsibilities of the FDIC.
B) establishing the Resolution Trust Corporation to manage and resolve insolvent thrifts placed
in conservatorship or receivership.
C) directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance.
D) all of the above.
E) only A and B of the above.
44) In the early 1990s, to replenish the reserves of the Savings Association Insurance Fund,
insurance premiums for S&Ls were increased from ________ cents per $100 of deposits to
________ cents and can rise as high as 32.5 cents.
A) 12.5; 17.5
B) 17.5; 20.5
C) 20.8; 23.0
D) 23.0; 27.8
45) Since 1993, the number of savings and loan associations has ________.
A) held steady
B) risen sharply
C) risen slightly
D) declined substantially
46) The largest asset held by S&Ls is ________.
A) consumer loans
B) securities
C) mortgage loans
D) consumer savings
47) (I) S&Ls’ net worth ratio is about the same as that of commercial banks.
(II) Goodwill accounts for a majority of S&Ls’ capital.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.
48) Since the early 1990s, the number of savings and loan associations has ________ and the
average size (in assets) has ________.
A) risen; declined
B) declined; risen
C) risen; risen
D) declined; declined
49) The main source of funds at savings and loan associations is
A) borrowing in the money market.
B) borrowing in the capital market.
C) deposits.
D) equity capital.
50) Since the early 1990s, the net income of savings and loan associations has ________.
A) risen
B) fallen slightly
C) fallen sharply
D) held steady
51) Credit unions are characterized by
A) mutual ownership.
B) common bond membership.
C) nonprofit, tax-exempt status.
D) all of the above.
E) none of the above.
52) The common bond membership requirement makes it difficult for ________ to diversify
their loans.
A) savings and loan associations
B) credit unions
C) banks
D) mutual savings banks
53) The smallest average-sized depository institution is ________.
A) credit unions
B) savings and loan associations
C) commercial banks
D) money market mutual funds
54) Which of the following is a lender of last resort for credit unions?
A) National Credit Union Administration
B) U.S. Central Credit Union
C) State central credit unions
D) The Central Liquidity Facility
55) The day-to-day liquidity needs of credit unions are met by the ________.
A) National Credit Union Administration
B) Federal Reserve System
C) state central credit unions
D) Central Liquidity Facility
56) Since 1980, the number of credit unions has ________.
A) declined substantially
B) remained steady
C) increased substantially
D) increased slightly
57) Since 1990, the number of credit union members has ________.
A) increased substantially
B) increased slightly
C) decreased substantially
D) decreased slightly
58) Credit unions’ main source of funds is ________.
A) regular share accounts
B) share certificates
C) share draft accounts
D) money market accounts
59) Credit unions’ main type of loans is ________.
A) mortgages
B) automobile
C) credit cards
D) nonresidential real estate
60) Mutual savings banks are concentrated in the ________ United States.
A) northeastern
B) southeastern
C) western
D) all of the above
61) Mutual savings banks
A) are heavily concentrated in mortgages.
B) have more flexibility in their investing practices.
C) are both A and B of the above.
D) are neither A nor B of the above.
62) To act in the taxpayer’s interest and lower costs to the deposit insurance agency, regulators
must
A) set tight restrictions on holding assets that are too risky.
B) impose high capital requirements.
C) not adopt a stance of regulatory forbearance.
D) do all of the above.
63) Politicians have ________ incentives to act in their own interests rather than in the interests
of taxpayers.
A) no
B) strong
C) weak
D) low
64) The purpose of reserve requirements
A) is to limit the expansion of the money supply.
B) is to ensure adequate liquidity for the institutions.
C) is both A and B of the above.
D) is neither A nor B of the above.
65) ________ view credit unions as unfair competitors due to government support they receive
in the form of tax advantages.
A) Regulators
B) The Federal Reserve
C) Commercial banks
D) none of the above
66) The capital of financial institutions is often measured by the ________ ratio.
A) current
B) net worth
C) asset turnover
D) liquidity
1) The mutual form of ownership accentuates the principal-agent problem that exists in
corporations.
2) Savings and loans are not as heavily concentrated in mortgages and have had more flexibility
in their investing practices than mutual savings banks.
3) The congressionally imposed cap on the interest rate that S&Ls could pay on savings accounts
became a serious problem for them in the 1970s when inflation rose.
4) Regulatory forbearance reduces moral hazard because an operating but insolvent S&L will
take fewer risks than healthy S&Ls that can take risks and still remain solvent.
5) The Competitive Equality in Banking Act of 1987 allowed the FSLIC to borrow all the funds
it needed to close insolvent S&Ls and pay off depositors.
6) In the 1980s, regulators engaged in bureaucratic gambling when they allowed insolvent S&Ls
to continue operating.
7) FIRREA imposed new restrictions on thrift activities that, in essence, re-regulated the S&L
industry to the asset choices it had before 1982.
8) Most credit unions today have federal charters.
9) Credit unions are owned by stockholders.
10) Federal legislation allows credit unions representing groups with different common bonds to
merge into a single credit union.
11) Credit unions view commercial banks as government-supported and hence unfair
competitors due to their tax advantages.
12) Mutual savings banks are the only financial institutions that are tax-exempt.
13) The second major liability of savings and loans is borrowings.
14) Listing large amounts of goodwill as an asset is another way that savings and loans are able
to hide the fact that they are insolvent.
19
Copyright © 2015 Pearson Education, Inc.
26.3 Essay
1) What factors contributed to creating the thrift crisis?
Topic: Chapter 26.3 Savings and Loans in Trouble: The Thrift Crisis
Question Status: Previous Edition
2) Explain why thrift regulators engaged in regulatory forbearance in the 1980s.
Topic: Chapter 26.4 Political Economy of the Savings and Loan Crisis
Question Status: Previous Edition
3) Explain how the Lincoln Savings and Loan scandal is an application of the principal-agent
problem.
Topic: Chapter 26.4 Political Economy of the Savings and Loan Crisis
Question Status: Previous Edition
4) Why did the Competitive Equality in Banking Act of 1987 fail to solve the problems in the
thrift industry?
Topic: Chapter 26.4 Political Economy of the Savings and Loan Crisis
Question Status: Previous Edition
5) How has the thrift industry been transformed since FIRREA?
Topic: Chapter 26.5 Savings and Loan Bailout: FIRREA of 1989
Question Status: Previous Edition
6) Why have commercial banks gone to court in an effort to limit the activities of credit unions?
Topic: Chapter 26.7 Credit Unions
Question Status: Previous Edition
7) Discuss the background of mutual savings banks and how this lead to the creation of S&Ls.
Topic: Chapter 26.1 Mutual Savings Banks
Question Status: New Question
8) Explain the advantages and disadvantages between mutual savings banks and savings and
loans.
Topic: Chapter 26.2 Savings and Loan Associations
Question Status: Previous Edition