Chapter 18: Bank Regulation
Chapter 18: Bank Regulation
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d.
corporate loan interest rates.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
9. The Glass-Steagall Act of 1933 prevented
a.
any firm that accepts deposits from underwriting stocks and bonds of corporations.
b.
any firm that accepts deposits from underwriting general obligation bonds of states and municipalities.
c.
any firm that accepts deposits from holding any corporate bonds in its asset portfolio.
d.
state-chartered banks from offering commercial loans.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
10. Which of the following was not achieved by the Depository Institutions Deregulation and Monetary Control Act of
1980?
a.
removed interest rate ceilings on deposits
b.
allowed banks to offer NOW accounts
c.
increased competition among depository institutions
d.
allowed interstate banking for depository institutions in most states
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
11. The Garn-St Germain Act of 1982
a.
permitted depository institutions to offer money market deposit accounts.
b.
prevented depository institutions from acquiring problem institutions across geographic boundaries.
c.
required the Fed to explicitly charge depository institutions for its services.
d.
allowed the Fed to provide check clearing to depository institutions at no charge.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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16. Which of the following is an “off-balance-sheet commitment”?
a.
long-term debt
b.
additional paid-in capital
c.
notes payable
d.
letters of credit backing commercial paper issued by firms
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
17. The liquidity component of the CAMELS rating refers to
a.
how a bank’s earnings would change if economic conditions change.
b.
how readily a bank’s management would detect its financial problems.
c.
a bank’s sensitivity to financial market conditions.
d.
the type of loans that a bank provides, the bank’s process for deciding whether to provide loans, and the credit
rating of debt securities that it purchases.
e.
whether a bank frequently needs to borrow from outside sources, such as the discount window.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
18. Which of the following is not a corrective action that regulators may take when a bank is identified as a problem
bank?
a.
examine the bank frequently and thoroughly
b.
request that the bank boost its capital level or delay its plans to expand
c.
require the bank to provide additional financial information that is periodically updated to allow continued
monitoring
d.
take legal action against the bank if it does not comply with their suggested remedies
e.
All of the above are possible corrective actions taken by bank regulators.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
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Page 7
23. Deposit insurance now covers all bank deposits without any limit.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
24. Which banking act allowed banks to cross state lines in order to acquire a failing institution?
a.
McFadden Act
b.
Glass-Steagall Act
c.
DIDMCA
d.
Garn-St Germain Act
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
25. Which banking act allowed for the creation of NOW accounts?
a.
McFadden Act
b.
Glass-Steagall Act
c.
DIDMCA
d.
Garn-St Germain Act
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
26. Which banking act allowed interstate banking?
a.
Reigle-Neal Interstate Banking and Branching Efficiency Act
b.
Glass-Steagall Act
c.
DIDMCA
d.
Sarbanes-Oxley Act
ANSWER:
a
DIFFICULTY:
Easy
Chapter 18: Bank Regulation
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Page 9
c.
Asset quality
d.
Management
e.
All of the above are used to rate banks.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
31. The moral hazard problem is minimized when deposit insurance premiums are
a.
zero (not imposed by the FDIC).
b.
the same percentage of deposits for all banks.
c.
set at a fixed percentage of deposits for large banks, and at zero for small banks.
d.
set at a percentage of deposits that is based on the bank’s risk.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
32. Which of the following statements is incorrect with respect to the Financial Services Modernization Act of 1999?
a.
It expanded the Glass-Steagall Act.
b.
It enabled commercial banks to more easily pursue securities and insurance activities.
c.
It allowed securities firms and insurance companies to acquire banks.
d.
It required commercial banks to have a strong rating in community lending in order to pursue additional
expansion in securities and other nonbank activities.
e.
All of the above are true.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
33. The ____ is the fund used to cover insured depositors.
a.
Deposit Insurance Fund
b.
Federal Deposit Insurance Corporation Fund
c.
Bank Depository Insurance Fund
d.
Financial Institution Insurance Fund
e.
none of the above
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 10
34. ____ is not a rating criterion used by bank regulators.
a.
Capital adequacy
b.
Savings deposit volume
c.
Asset quality
d.
Management
e.
Liquidity
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
35. The act of taking on more risk because of protection from adverse consequences due to the risk is referred to as a
moral hazard problem.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
36. The Sarbanes-Oxley Act (SOX) was enacted in 2002 in order to ensure a more transparent process for reporting on a
firm’s productivity and the financial condition.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
37. The Sarbanes-Oxley Act (2002) was enacted in response to some banks taking too much risk.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 11
38. Publicly traded banks have incurred larger reporting expenses as a result of having to comply with the Sarbanes-Oxley
Act.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
39. The Financial Services Modernization Act of 1999
a.
gave banks and other financial service firms less freedom to merge.
b.
allowed financial institutions to offer a diversified set of financial services.
c.
offered very few benefits to a financial institution’s clients.
d.
increased the reliance of financial institutions on the demand for the single service they offer.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
40. When the Federal Reserve conducts stress tests of banks, it may examine the U.S. operations of foreign-based banks
as well as U.S. banks.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
41. All state banks are required to be members of the Federal Reserve System.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 12
42. State banks are regulated by the Comptroller of the Currency.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
43. Banks that are insured by the Federal Deposit Insurance Corporation (FDIC) are also regulated by the FDIC.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
44. Commercial banks are allowed to invest in junk bonds.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
45. During the credit crisis, banks argued that they should be allowed to use fair value accounting in valuing their assets
for purposes of meeting capital requirements.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
Chapter 18: Bank Regulation
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a.
established the Financial Stability Oversight Council
b.
put limits on banks’ proprietary trading
c.
established the Consumer Financial Protection Bureau
d.
reestablished the separation between banking and securities activities that had existed under the Glass-Steagall
Act
e.
required derivative securities to be traded through a clearinghouse or exchange
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
51. A federal bank charter is issued by the
a.
Comptroller of the Currency.
b.
Securities and Exchange Commission.
c.
U.S. Treasury.
d.
Federal Reserve.
e.
none of the above
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
52. Bank regulations typically:
a.
involve a trade-off between the safety of the banking system and the efficiency of bank operations.
b.
impose restrictions on the types of assets in which banks can invest.
c.
set requirements for the minimum amount of capital that banks must hold.
d.
all of the above
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
53. When a bank holds a lower level of capital, a given dollar level of profits represents a lower return on equity.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.04
Chapter 18: Bank Regulation
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Page 16
Bear was a securities firm and not a commercial bank.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
58. The Volcker rule, named for a former Fed chair:
a.
is intended to increase the powers of the Fed.
b.
states that the U.S. government will rescue certain large banks if necessary to reduce systemic risk in the
financial system.
c.
sets limits on banks’ proprietary trading.
d.
requires all banks to undergo annual stress tests.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
59. The Financial Reform Act (Wall Street Reform and Consumer Protection Act or Dodd-Frank Act) of 2010:
a.
ended the system of risk-based insurance premiums.
b.
set requirements for the Deposit Insurance Fund’s reserves.
c.
raised the limit for insured deposits to $750,000 per depositor.
d.
allowed large insurance companies such as American International Group to compete with the FDIC to insure
bank deposits.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
60. The Volcker Rule prohibits banks from sponsoring or holding an ownership interest in a hedge fund or a private equity
fund.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.18.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s Knowledge
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