Short Answer Question
98. Why does the United States have more banks than most other highly
industrialized countries?
99. Why did it take almost 100 years before the United States had its own
national currency?
100. What does it mean to say the United States has a dual banking system?
101. What is the source of regulatory competition in banking? Discuss how the focus of this
competition has changed over time.
102. It has been argued that the laws that prohibited branch banking were needed to protect
consumers from large monopoly banks. Does that argument hold up to close scrutiny?
Explain.
103. Explain why anti-branching laws often created credit crunches that slowed economic
growth.
104. It has been argued that regulations can often be the source of innovation. Provide an
example of this in the banking industry.
105. The number of banks in the U.S. has fallen almost by half in the past twenty years or
so. Was this the result of bank failures or were some due to another cause? Explain.
106. The Riegle-Neal Interstate Banking and Branching Efficiency Act has allowed banks to
diversify themselves geographically. Has this geographical expansion resulted in the harm to
consumers that early supporters of anti-branching laws feared? Explain.
107. Explain why a domestic bank in the U.S. might create a subsidiary bank in a foreign
location like the Cayman Islands.
108. Owners and managers have cited three reasons for the creation of large financial firms
or universal banks. What are these reasons?
109. The growth of internet banking seems to be on the rise. Discuss what the continued
growth of internet banking should do to both the economies of scale and scope of banking.
110. There are two current trends in the financial industry which run in opposite directions.
What are they?
111. What is the basic difference(s) between term and whole life insurance?
112. Which insurance companies, life or property and casualty, would you think would
invest more in long-term assets? Explain.
113. Many insurance companies sell group policies that cover all of the employees at a
particular firm, or all of the members of a particular organization. How could this policy help
to overcome the problem of adverse selection?
114. Within the insurance industry a common saying is that insurance works because of the
“law of large numbers”. What do you think is meant by this?
115. A very controversial issue in many states currently is whether or not insurance
companies should be allowed to use a person’s credit history as a tool in determining the
individual’s automobile and homeowner insurance premium. Without getting into the legal or
ethical issues, what do you think the insurance companies’ motives might be for wanting to
use the credit report?
116. Why do you think most health insurance policies require the first $100 or so of every
claim and a percentage of the bill after that to be paid by the insured?
117. Why do insurance companies often find it necessary to purchase reinsurance?
118. Explain why the decoding of the human genome has interesting implications for the life
insurance industry.
119. Explain the difference between a pension fund that is a defined-contribution plan from
one that is a defined-benefit.
120. In what way(s) can a pension plan be seen as the opposite of life insurance?
121. Why do you think Congress and the President are reluctant to fix the problems
(identified in the text) with the Social Security System?
122. From a transaction cost perspective, discuss why a firm may contract with an
investment bank to underwrite or place an issue.
123. Explain why a large equipment provider that sells to many of its commercial customers
on account may use a finance company.
Essay Questions
124. Evaluate the pros and cons of the repeal of the Glass-Steagall Act of 1933.
125. Considering the government-sponsored enterprises like Freddie Mac, Fannie Mae, and
others, do you see any indication that the managers of these agencies are creating a moral
hazard? Explain.