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CHAPTER 16
TRUE/FALSE QUESTIONS
typically unmatched.
assets and shorten their asset durations.
funds together and make low-cost loans to themselves as a group.
loans.
risk.
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small shorter-term loans over large longer-term loans.
and inadequate interest rate risk management.
deposits.
dependence on deposit sources of funds.
order to maintain their favorable tax status and obtain loans from Federal Home Loan
Banks.
the balance sheet than savings institutions.
partnerships.
MULTIPLE-CHOICE QUESTIONS
a. FIRRE Act of 1989.
b. FDIC Improvement Act of 1991.
c. Garn-St. Germain Act of 1982.
d. DIDMCA Act of 1980.
a. FHLBB. b. OTS. c. OCC. d. Fed.
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a high negative GAP position?
a. NOW accounts
b. high yield bonds
c. adjustable rate mortgages
d. fixed rate mortgage-backed securities
a. Tax incentives provided by Congress.
b. To reduce interest rate risk.
c. They have the management expertise to specialize in mortgages.
d. Both a and c.
a. purchasing federal funds.
b. issuing commercial paper.
c. buying mortgage-backed bonds.
d. advances from Federal Home Loan Banks.
a. non-interest expense, interest expense, provision for loan losses.
b. provision for loan losses, non-interest expense, and interest expense.
c. interest expense, non-interest expense, and provision for loan losses.
d. tax expense, interest expense, and provision for loan losses.
a. FDIC Improvement Act of 1991.
b. FIRRE Act of 1989.
c. Garn-St. Germain Act of 1982.
d. DIDMCA Act of 1980.
tend to have fewer:
a. intangible assets.
b. repossessed properties.
c. high-yield securities.
d. residential mortgages.
a. the use of the mutual form of organization.
b. loan losses.
c. high operating expenses.
d. all of the above
a. managers would inflate salaries and perks for themselves.
b. managers were encouraged to assume excessive credit risk.
c. managers were encouraged to sell low-yielding mortgages, book the loss, and
reinvest in higher yielding 1-4 family residential mortgages.
d. managers were encouraged to reduce risk to dangerously low levels.
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a. loan losses related to new asset powers granted in 1980.
b. high, sustained interest rates.
c. the high rates paid on NOW accounts.
d. higher yields from consumer credit card loans.
a. few; most.
b. most, few.
c. very few; half.
d. most; half.
a. mortgage-backed securities.
b. construction loans.
c. residential mortgages.
d. cash and investment accounts.
years, few have expanded very far beyond mortgage related activities for all but one of
the following reasons:
a. unfamiliarity with new, competitive markets.
b. lack of experienced employees trained in the new areas.
c. reluctance to challenge the banking industry.
d. concern over possible loss of federal income tax advantages
a. increased fixed rate mortgages
b. increased long-term CDs
c. increased money market deposit accounts
d. increased federal funds purchased
a. a source of liquidity from the mortgage portfolio.
b. a source of interest income.
c. an opportunity to reduce a high negative GAP position.
d. an opportunity to make additional mortgage loans.
a. a reduced GAP position
b. conversion from stock to mutual charter
c. sale of preferred stock
d. increased reserve for loan losses
a. examines federally chartered S&L’s.
b. administers the Savings Association Insurance Fund (SAIF).
c. charters federal S&Ls.
d. supervises S&L holding companies.
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a. give financial historians something to study.
b. insure federal S&Ls.
c. regulate the capital position of S&Ls.
d. monitor the activities of the 12 FHLBs.
a. its work was complete
b. its mission proved ultimately impossible
c. it failed
d. of political infighting
a. commercial bank
b. savings and loan association
c. savings bank
d. credit union
a. states only.
b. the federal government only.
c. both states and the federal government
d. none of the above.
a. FHLBB b. OTS c. RTC d. FSLIC
a. state b. federal c. private d. group
a. to obtain federal deposit insurance
b. to sell stock and increase their net worth
c. to acquire subsidiaries more easily
d. to merge with other institutions more easily
the amount of assets of those institutions has _______?
a. increased, increased
b. increased, decreased
c. decreased, increased
d. decreased, decreased
a. mutuals
b. corporations
c. proprietorships
d. partnerships
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a. managers
b. depositors
c. stockholders
d. the general public
a. large insurance companies
b. Federal Deposit Insurance Corporation
c. Federal Savings and Loan Insurance Corporation
d. FDIC-BIF
a. insure the deposits of problem thrift institutions.
b. charter and regulate savings and loan associations.
c. liquidate and sell problem savings and loans.
d. resolve the interest rate risk problems of thrifts.
regulator in 1989.
a. Federal Savings and Loan Insurance Corporation
b. Federal Deposit Insurance Corporation
c. Federal Home Loan Bank Board
d. Federal National Mortgage Corporation
a. home mortgages; small denomination deposits
b. commercial mortgages; large denominations deposits
c. home mortgages; large denomination deposits
d. multifamily home mortgages; small denomination deposits
balance sheet is associated with:
a. the real estate associated with the home office and branches.
b. the real estate financed by home mortgages
c. the real estate of managers and employees financed by the institution.
d. repossessed real estate associated with foreclosed mortgage loans not yet resold.
a. industry consolidation
b. stock sales and earnings retention
c. declining problem loans
d. all of the above
a. increased net interest income per average assets.
b. decreased noninterest expenses per average assets.
c. increased noninterest income per average assets.
d. the decline in average assets in the period.
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a. making more mortgages financed by six month CD’s.
b. performing more mortgage banking activities.
c. buying Treasury bond futures to reduce the thrift’s negative maturity GAP.
d. making more thirty-year mortgages.
a. making more adjustable rate mortgage loans
b. buying related futures contracts.
c. borrowing less long-term funds from the FHLB.
d. raising the rates on short-term CD’s.
a. Credit unions pay federal income taxes.
b. To use the services of a credit union one must be a member.
c. Credit unions have been exempt from antitrust laws.
d. The total number of credit unions is declining in the United States.
a. state governments.
b. the National Credit Union Administration.
c. the Comptroller of the Currency.
d. either a or b
a. NCUSIF.
b. FDIC.
c. SAIF.
d. none of the above
a. Credit unions, most of which are very small, cannot match the extent of services
offered by a commercial bank.
b. Credit union share accounts are the functional equivalent to passbook accounts.
c. Credit unions may arguably be more comparable to “clubs” than to businesses.
d. Credit unions have a common-bond requirement.
a. small size.
b. sponsor support.
c. federal income tax exemption.
d. payroll deduction.
a. higher average balances.
b. profit potential of such loans.
c. the Federal Bankruptcy law.
d. all of the above
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a. obtain their funds in large amounts, lend in small amounts.
b. obtain their funds in small amounts, lend in large amounts.
c. have a greater proportion of deposit sources of funds
d. be less flexible in their ability to branch.
a. certificates of deposit.
b. cash, ready to be loaned out.
c. loan receivables.
d. commercial paper.
a. income and financing.
b. liquidity and cash.
c. liquidity and income.
d. collateral and income.
a. directly from the bank.
b. through direct contact with dealers.
c. through direct contact with suppliers of funds.
d. directly through the mail.
a. the wide variety of financial services allowed by the Federal Reserve System.
b. little constraining regulation at the commercial finance level.
c. the opportunistic culture of finance company managers.
d. “b” and “c” above.
a. qualify for deposit insurance
b. somehow obtain repeal of the laws now prohibiting them from doing so
c. affirmatively disclose that such deposits are uninsured
d. obtain “industrial bank” charters
a. decrease; larger b. increase; larger c. stay the same; larger d. increase; smaller
a. Federal Reserve Board
b. the U.S. Treasury
c. Federal Housing Finance Agency
d. banking agencies in different states
e. Department of Commerce
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I. Credit unions are not taxed
II. Credit unions are better diversified than banks
III. Credit unions can collectively pool funds
IV. Due to regulations credit unions have better economies of scale and scope than banks
V. Because of their ties to employers credit unions have better personnel expertise than banks
a. I and III only
b. I and II only
c. III and IV only
d. III, IV and V only
e. I, III and V only
a. Since clients are selected, they are low-risk borrowers.
b. Finance companies are highly financially leveraged.
c. Most funds of finance companies are borrowed from banks and the market.
d. Most larger finance companies are now subsidiaries of bank and financial holding
companies.
e. Finance companies are diverse and adaptive to changing needs
discount is:
a. Equipment leasing
b. Letter of credit
c. Retail paper
d. Wholesale paper
e. Factoring
ESSAY QUESTIONS
1. Explain how unexpected increases in interest rates hurt savings institutions. How would they
alter their maturity GAP if they expected interest rates to rise?
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2. The issue of defining the common bond among members of credit unions has been in the courts
and Congress. Why is this issue important to competing bankers? To credit unions? Does it
have any relationship to the risks faced by credit unions?
3. Explain how finance companies and depository institutions might differ in managing credit risk.
4. 50. Please list the major advantages and challenges that credit unions enjoy over banks.