61. You hold an FDIC insured savings account at your neighborhood bank. Your current
balance is $275,000. If the bank fails you will receive:
a. $275,000.
b. $250,000.
c. $100,000.
d. $125,000.
62. You have two savings accounts at an FDIC insured bank. You have $225,000 in one
account and $40,000 in the other. If the bank fails, you will receive:
a. $225,000.
b. $40,000.
c. $115,000.
d. $250,000.
63. You have savings accounts at two separately FDIC insured banks. At one of the banks
your account has a balance of $200,000. At the other bank the account balance is $60,000. If
both banks fail, you will receive:
a. $250,000.
b. $60,000.
c. $260,000.
d. $200,000.
64. You have savings accounts at two separately FDIC insured banks. At one of the banks
your account has a balance of $200,000. At the other bank the account balance is $60,000.
You find out the banks are going to merge. If you are concerned about the possibility of the
new bank failing, you should:
a. do nothing; you are still insured up $250,000 per account.
b. consider moving $10,000 to another account at the same bank.
c. consider moving $10,000 to another account at a different bank.
d. do nothing; as an individual you are only insured up $250,000 no matter where the
accounts are.
65. A long-standing goal of financial regulators has been to:
a. prevent banks from growing too big and powerful.
b. minimize the competition that banks face.
c. encourage banks to grow as large as possible.
d. discourage small rural banks.
66. Following the consolidation that resulted from the 2007-2009 financial crisis in the
U.S., the 4 largest commercial banks share of total deposits was:
a. 73%.
b. 50%.
c. 36%.
d.25%.
67. Bank mergers require government approval because banking officials want to make sure
that:
a. the merger will create a larger bank.
b. the merger will not create a monopoly.
c. the merged bank will be more profitable.
d. the merger will not result in regulatory competition.
68. Which of the following statements is most correct?
a. Financial regulators do everything possible to encourage competition in banking.
b. Financial regulators work to prevent monopolies but also work to prevent strong
competition in banking.
c. Financial regulators discourage competition in banking.
d. Financial regulators prefer banks to have monopoly power in their geographic markets.
69. Banking regulations prevent banks from:
a. holding more than 10 percent of their assets in common stock of companies.
b. owning corporate jets.
c. owning common stocks of corporations.
d. building big office buildings.
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70. One reason that financial regulations restrict the assets that banks can own is to:
a. combat the moral hazard that government safety nets provide.
b. limit the growth rate of banks.
c. prevent banks from being too profitable.
d. keep banks from spending lavishly on perks for executives.
71. Financial regulators set capital requirements for banks. One characteristic about these
requirements is:
a. every bank will have to hold the same level.
b. the riskier the asset holdings of a bank, the more capital it will be required to have.
c. the more branches a bank has, the more capital it must have.
d. the amount of capital required is inversely related to the amount of assets the bank owns.
72. The original Basel Accord was:
a. the basic set of guidelines the Federal Reserve applies in regulating domestic banks.
b. a set of guidelines for basic capital requirements for internationally active banks.
c. an agreement between state and federal regulators to try to have one standard set of
guidelines for all banks.
d. a set of guidelines applied only to international banks operating with U.S. boundaries.
73. Which of the following is not a positive effect of the Basel Accord?
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a. It forced regulators to change the way they thought about bank capital.
b. It promoted a more uniform international system.
c. It provided a framework that less developed countries could use to improve the regulation
of their banks.
d. It provided a system to differentiate between bonds based on their systemic risk.
74. Which of the following is not a pillar of the latest Basel Accord?
a. A revised set of minimum capital requirements
b. It includes liquidity requirements in addition to capital requirements
c. It supplements capital requirements based on risk-weighted assets with restrictions on
leverage
d. Uniform international laws for bank regulation
75. Banks are required to disclose certain information. This disclosure is done for all of the
following reasons except:
a. to enable regulators to more easily assess the financial condition of banks.
b. to allow financial market participants to penalize banks that carry additional risk.
c. to allow customers to more easily compare prices for services offered by banks.
d. create uniform prices for standard bank services.
76. The supervision of banks includes:
a. requiring bank officers to attend classes on an annual basis.
b. on-site examinations of the bank.
c. extensive background checks of all bank officers.
d. requiring banks to file monthly reports on their revenues, expenses and profits.
77. Prior to the financial crisis of 2007-2009 banks did all but which of the following to
bulk up their profit:
a. bought or sponsored hedge funds.
b. traded securities for customers.
c. purchased equities for their own account.
d. colluded to fix benchmark interest
rates.
78. One reason a bank’s officer may be reluctant to write off a past-due loan is that it will:
a. increase the bank’s liabilities.
b. decrease the bank’s assets and capital.
c. increase the bank’s liabilities and assets, requiring more capital to be
held. d. make the bank’s accounts less transparent.
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79. The acronym CAMELS, which is the criteria used by supervisors to evaluate the health of
banks, includes the following, except:
a. asset quality.
b. losses.
c. management.
d. earnings.
80. The CAMELS ratings are:
a. made public monthly to the financial markets so people can judge the relative quality of
banks.
b. published once a quarter in banking journals issued by the Federal Reserve.
c. included in the annual report of publicly owned banks.
d. not made public.
81. A bank supervisor examines the bank’s portfolio of loans to see if the loans are being
repaid in a timely manner. In terms of the acronym CAMELS, this would be part of rating the
bank’s:
a. asset quality.
b. losses.
c. management.
d. earnings.
82. Regulators and supervisors of banks are challenged by all of the following, except:
a. globalization of financial services.
b. the use of new financial instruments that shift risk without shifting ownership.
c. technological innovation.
d. reinforcement by Congress of functional and geographic barriers in banking.
83. In today‘s world, the goal of financial stability means:
a. no institution should fail.
b. competition should be eliminated.
c. preventing large-scale financial catastrophes.
d. creating one mega regulatory agency.
84. The financial crisis of 2007-2009 has made which of the following regulatory goals a top
priority for government:
a. disclosure of accounting information.
b. minimum capital requirements.
c. avoidance of systemic risk.
d. promotion of competition.
85. In the United Kingdom, regulation of the financial system is concentrated in two agencies.
They are:
a. The Federal Deposit Insurance Conglomerate and the Bank of England.
b. The Financial Conduct Authority and the Bank of England.
c. The Financial Conduct Authority and English Banking Authority.
d. The Bank of England and the U.K. Treasury.
86. Which of the following is not an important addition made to the Basel Accords by Basel
III in 2010?
a. It supplements capital requirements based on risk-weighted assets with restrictions on
leverage.
b. It introduces three buffers over and above capital requirements itself.
c. It adds a liquidity requirement that compels banks to hold a quantity of high-quality
liquid assets.
d. It ends the too-big-to-fail problem.
87. Which of the following is not a goal of the Dodd-Frank Act of 2010?
a. To anticipate and prevent financial
crises by limiting systemic risk
b. To end “too big to fail”
c. To promote competition
d. To reduce moral hazard
Short Answer Question
88. The text points out that there is an inverse relationship between the fiscal cost of a bank
crisis and real GDP growth. What are some of the reasons that can explain this inverse
relationship?
89. Why might there be a trade-off between a bank’s profitability and its safety?
90. Why do bank runs usually have people rushing to their bank instead of waiting for the
lines to taper off so they do not have to wait so long?
91. What is the difference between a bank that is insolvent and one that is illiquid?
92. Why is it that a run on a single bank can turn into a widespread financial panic, or what
the text identified as contagion?
93. How do banks potentially make economic downturns more severe and how do economic
downturns contribute to the increased failure of banks?
94. Why is the financial industry inherently more unstable than most other industries?