1. Which of the following is NOT a reason for the government to regulate banks?
a. To reduce the externalities caused by bank problems
b. To stabilize the money supply
c. To prevent bank runs
d. To keep banks large
2. Which of the following is a reason for the government to regulate banks?
a. To prevent bank runs
b. To prevent the situation of contagion
c. To help a bank grow in size
d. To allow for the situation of a bank run
3. When many depositors go to a bank at the same time to withdraw their money, there is said to be
a. contagion.
b. a loss of depositor’s credibility.
c. a loss of reserves.
d. a bank run.
4. When a bank run spreads from one bank to another, it is said to be
a. contagion.
b. a loss of depositor’s credibility.
c. a loss of reserves.
d. an over-run.
5. Which of the following is a possible drawback of a bank run?
a. It leaves the banks with excess reserves.
b. It leads to a fall in investment activities because of lack of loans available to business firms.
c. It leads to a fall in the demand for loans by the business firms.
d. It leads to an excessive increase in the supply of money by the banks.
6. The mechanisms by which cash, checks, and electronic payments flow from buyers to sellers are called
a. the transactions system.
b. float.
c. the payments system.
d. ACH.
7. Which of the following is a government regulation that enables the government to achieve its goals for the banking
system?
a. A government regulation that allows for mergers in order to help increase the size of a bank.
b. A government regulation that provides complete discretion to banks to manage the supply of money.
c. Banks are required to hold reserves in order to control the money supply.
d. Banks are penalized in case of inefficient functioning.
8. The document that a bank must fill out quarterly, reporting its assets, liabilities, and profits to the government, is
called a
a. balance-sheet analysis.
b. P&L statement.
c. white paper.
d. call report.
9. Which of the following is NOT included in the call report filed by a commercial bank?
a. A report on a bank’s assets
b. A report on a bank‘s liabilities
c. A report on a bank‘s compliance with the Fair Lending Act
d. A report on a bank‘s profits
10. Which of the following is an error made by commercial banks in 1920s that caused depositors to lose money and
forced regulators to impose restrictions?
a. Banks sold securities in the primary market.
b. Smaller banks merged to form larger banks.
c. Banks issued loans to a number of firms that went bankrupt during the Great depression.
d. Banks did not diversify their activities and were engaged only in banking activities.
11. The Glass-Steagall Act was passed into law in the year
a. 1999.
b. 1913.
c. 1933.
d. 1980.
12. The law that prohibited banks from engaging in investment banking was the
a. Gramm-Leach-Bliley Act.
b. Glass–Steagall Act.
c. McFadden Act.
d. Garn–St. Germain Act.
13. To oppose the Glass-Steagall Act, banks argued that they
a. would be forced to extend deposit insurance coverage to firms that were not banks.
b. would have a conflict of interest between their needs to underwrite stocks and to serve their customers.
c. could gain greater monopoly power by lending only to big businesses.
d. could take advantage of economies of scope if they were able to underwrite securities and sell them directly
to their customers.
14. An enterprise that either take deposits or make loans but do not perform both the activities together, and therefore is
not subject to the same restrictions as banks is known as
a. non-governmental organizations.
b. corporations.
c. nonbanks.
d. business firms.
15. During the time that the Glass-Steagall Act was in effect, which banking authority wanted to allow banks to be able
to engage in more nonbanking activities through operating subsidiaries?
a. The Federal Reserve
b. The Office of Comptroller of the Currency
c. The U.S. Treasury Department
d. The Federal Deposit Insurance Corporation
16. Which of the following is true of the Glass-Steagall Act?
a. The act provides authority to the Federal Reserve to regulate bank holding companies and prevent them from
branching out.
b. The act enables banks to engage in more non-banking activities by operating subsidiaries.
c. The act prohibits banks to own subsidiary firms that sold products other than banking services.
d. The act encourages banks to meet the credit needs of their communities.
17. The proponents of repeal of the Glass-Steagall Act argued that repeal will
a. lead to an increase in operational and information costs of banks.
b. increase externalities because of banking problems.
c. reduce the international competitiveness of the commercial banks.
d. lead to the generation of a higher capital level.
18. The law that allowed banks to engage in investment banking was the
a. Gramm-Leach-Bliley Act.
b. Glass–Steagall Act.
c. McFadden Act.
d. Garn–St. Germain Act.
19. The Gramm-Leach Bliley Act was passed in the year
a. 1930.
b. 1999.
c. 1956.
d. 1977.
20. A financial holding company (FHC) is the a financial structure that can
a. own a bank and an insurance underwriting firm.
b. own either an insurance underwriting firm or an insurance agency.
c. own either an insurance agency or a securities agency.
d. own either a securities agency or a securities underwriting firm.
21. The Gramm-Leach-Bliley Act created the financial holding company (FHC) structure in order to
a. allow banks to engage in additional non-banking activities.
b. allow banks to merge with other banks.
c. prevent banks from dealing in securities and insurance products.
d. prevent bank holding companies from branching across state lines.
22. The Dodd–Frank act was passed into law in
a. 2010.
b. 1999.
c. 1933.
d. 1913.
23. Which act set a limit to prevent a bank from merging with others if it would increase its liabilities to more than 10
percent of national bank liabilities?
a. The Gramm-Leach-Bliley Act
b. The Community Reinvestment Act
c. The Dodd-Frank Act
d. The Interstate Banking and Branching Efficiency Act
24. The government provides deposit insurance through the
a. FDIC.
b. FHC.
c. FSLIC.
d. IDC.
25. FDIC insurance covers a depositor up to
a. $10,000.
b. $50,000.
c. $100,000.
d. $250,000.
26. The funds used to pay for FDIC insurance coverage come from
a. insurance premiums paid by depositors.
b. insurance premiums paid by banks.
c. U.S. government tax revenue.
d. taxes imposed on interest income.
27. The government as a lender of last resort
a. will make loans to anyone, regardless of their level of wealth or income.
b. does not discriminate in loan markets.
c. guarantees to supply funds to solvent but illiquid banks.
d. gives money to banks with negative equity capital.
28. Which of the following is an example of a solvent bank?
a. A bank that is out of funds to meet the demand of customers
b. A bank with negative equity capital
c. A bank that has high default risk on debt issue
d. A bank with positive equity capital
29. In its role as a lender of last resort, the government lends to banks that are
a. solvent but illiquid.
b. solvent and liquid.
c. insolvent and illiquid.
d. insolvent but liquid.
30. When the Federal Reserve makes a loan to a bank at the discount window,
a. the Fed requires that the loan be repaid the next day.
b. the interest rate charged by the Fed is equal to the federal funds rate.
c. the loan is backed by collateral.
d. the Fed requires the bank to buy additional deposit insurance.
31. The Federal Reserve’s function as the lender of last resort leads to the problem of
a. economic instability.
b. contagion.
c. bank run.
d. adverse selection.
32. The main idea of the government’s supervision and regulation of banks is that it is willing to banks that
are solvent, banks that are insolvent or badly run.
a. insure deposits for; and provide loans to
b. close; but insure deposits for
c. close; but provide loans to
d. insure deposits for or provide loans to; but will close
33. The government policy that does not allow large banks to fail is known as
a. capital modernization.
b. the too-big-to–fail policy.
c. bank truncation.
d. regulatory policy.
34. The too-big-to-fail policy is a policy under which bank regulators will not close a bank that is deemed to
a. have enough reserves to meet the cash requirements of its customers.
b. have a history of low default risk on debt issue.
c. be so large that its closure would affect the financial system and cause other banks to fail.
d. be larger than the Federal Reserve System.
35. Which of the following is NOT a method used by the FDIC to handle a bank failure?
a. Foreclosure
b. Purchase and assumption
c. Assistance
d. Payoff
36. Under the payoff method of handling a bank failure, the FDIC
a. takes over the bank and controls its operations.
b. closes the bank, sells off the assets, pays off insured depositors, and then pays off creditors of the bank if
funds remain.
c. keeps the bank open and lends funds to it so that it is able to continue its operation.
d. finds a buyer for the bank, giving the buyer the good assets of the bank, and assumes the bad loans of the
bank.
37. Under the purchase-and-assumption method of handling a bank failure, the FDIC
a. takes over the bank and controls its operations.
b. closes the bank, sells off the assets, pays off insured depositors, and then pays off creditors of the bank if
funds remain.
c. keeps the bank open and lends funds to it so that it is able to continue its operations.
d. finds a buyer for the bank, giving the buyer the good assets of the bank, and assumes the bad loans of the
bank.
38. Under the assistance method of handling a bank failure, the FDIC
a. takes over the bank and controls its operations.
b. closes the bank, sells off the assets, pays off insured depositors, and then pays off creditors of the bank if
funds remain.
c. keeps the bank open and lends funds to it so that it survives.
d. finds a buyer for the bank, giving the buyer the good assets of the bank, and assumes the bad loans of the
bank.
39. In which decade did the number of failures (of commercial banks and thrifts) per year average more than 100?
a. 1930s
b. 1960s
c. 1980s
d. 1950s
40. In the 1950s, the number of failures (of commercial banks and thrifts) per year averaged
a. near zero.
b. about fifty.
c. about 100.
d. in the hundreds.
41. In the financial crisis in 2008 and 2009,
FDIC using the assistance method.
a. 1,300
b. 130
c. 13
d. 2
banks with a total of $3.2 trillion in assets were rescued by the
42. The least costly transaction method for the FDIC to close an insolvent bank is
a. payoff.
b. purchase and assumption.
c. assistance.
d. foreclosure.
43. The U.S. government, in the year 2010, passed the
activities that can lead to financial crisis.
Act to prevent financial institutions from engaging in
a. Financial Institutions Reform, Recovery, and Enforcement
b. Dodd-Frank Wall Street Reform and Consumer Protection
c. Gramm-Leach-Bliley
d. Glass-Steagall
44. To keep large financial firms from behaving recklessly and endangering the rest of the economy, the Dodd-Frank
Wall Street Reform and Consumer Protection Act created the
a. Financial Stability Oversight Council.
b. Financial Stimulus Oversight Council.
c. Financial Stability Output Council.
d. Financial Crisis Oversight Corporation.
45. Which of the following is true of the Dodd-Frank Wall Street Reform and Consumer Protection Act?
a. The Dodd-Frank Act prevents bank holding companies from branching across state lines.
b. The Dodd-Frank Act allowed banks to sell insurance and engage in investment banking activities.
c. The Dodd-Frank Act was passed in the year 1999.
d. Under the Dodd-Frank Act banking regulators increased the capital and liquidity requirements for banks and
other financial institutions.
46. According to the Consumer Financial Protection Bureau, banks must not offer mortgage loans to households for
whom the monthly mortgage payments costs more than of their income.
a. 20 percent
b. 35 percent
c. 43 percent
d. 50 percent
47. The Act allows national bank to have additional offices in the same city as their main office.
a. Glass-Steagall
b. McFadden
c. Bank Holding Company
d. National Bank
48. Which of the following acts gives the responsibility as the lender of last resort to the central bank in the U.S?
a. National Bank Act
b. Federal Reserve Act
c. Bank Holding Company Act
d. McFadden Act
49. Which of the following is true of the Garn-St. Germain Act?
a. It allows thrifts to invest up to 10 percent of portfolios in riskier assets such as stocks and real estate.
b. It creates the system of national banks to be chartered by the Comptroller of the currency.
c. It creates the Federal Reserve system and gives it the responsibility as the lender of last resort.
d. It prohibits commercial banks from investment banking activities.
50. Which of the following acts abolishes the FSLIC and gives responsibility of thrift deposit insurance to the FDIC?
a. The Garn-St. Germain Act
b. The Community Reinvestment Act
c. The Federal Deposit Insurance Corporation Improvement Act
d. The Financial Institutions Reform, Recovery, and Enforcement Act