108. A major cause of the recent banking crisis was the neglect of banks to seriously scrutinize
loan applicants for creditworthiness.
109. A savings and loan association (S&L) is a financial institution that accepts both savings
and checking deposits and provides home mortgage loans.
110. Historically, savings and loans always paid lower interest rates on time deposits.
111. Savings and loan associations, also known as thrift institutions, were created to promote
consumer thrift and home ownership.
112. Many S&Ls failed due to the inflation of the 1970s, deregulation, regulatory failure, and
fraud.
113. Credit unions represent nonprofit, member-owned financial cooperatives that offer the full
variety of banking services to their members.
114. As nonprofit institutions, credit unions enjoy an exemption from federal income taxes.
115. Credit unions are for-profit cooperatives.
116. Pension funds are monies put aside by corporations, nonprofit organizations, or unions to
fund the financial needs of their employees, upon retirement.
117. Nonbanks accept deposits, but do not offer lending services, brokerage services, or
insurance services.
118. Some financial services organizations lend money directly to corporations.
119. Pension funds invest monies contributed by employers and/or employees for the benefit
of their members’ retirement.
120. Large pension funds represent a powerful force in U.S. financial markets.
121. Commercial and consumer finance companies specialize in making low-interest loans to
individuals and businesses with strong credit ratings.
122. Brokerage firms now compete with commercial banks by offering high-yield combination
savings and checking accounts.
123. The interest paid on time deposits, today, represents the main difference between time
and demand deposits.
124. The ability to access funds without a penalty helps to explain why certificates of deposit
(CDs) have gained popularity among conservative investors and savers.
125. Today’s consumers have fewer options and less flexibility as a result of increased
regulation of the banking industry.
126. Due to federal regulations limiting their investment opportunities, pension funds play a
minor role in U.S. financial markets.
127. Because they charge higher interest rates, commercial and consumer finance companies
often fail to attract borrowers.
128. According to the
Spotlight on Small Business
box, merchant cash advance providers often
charge much lower interest rates than traditional banks.
129. After years of banking with Quality Bank and Trust, Saul decided to switch to a competing
institution. Thanks to changes in government regulation, his search will uncover a variety of
options; however, he will also learn that banks and nonbanks have merged in order to be more
competitive in the banking and financial services industries, which may or may not increase his
options.
130. Last week Dave was looking for a place to deposit a $30,000 inheritance from his Great
Aunt Martha, who passed away three months ago. He does not plan to spend his money
frivolously. He will need part of the funds from time to time for his college education, which he
promised Great Aunt Martha he would complete. After speaking with several sales consultants in
banking and nonbank institutions, he likes the fact that he can open a stock brokerage account
and a money-market account at Goodman Stacks Investment Company (a nonbank company),
and will be issued checks for paying bills. You remind him that with the recent mergers between
banking and nonbank institutions, he may be able to find a company that provides (both) the
convenience of banking services (ATM, cash availability) and low–risk/high-risk securities
products.
131. The U.S. government’s lack of regulation alone caused the banking crisis and collapse of
banks that had been in business for several decades.
132. In the early 2000s, banks took the mortgages that they owned, created mortgage-backed
securities out of them, and sold them as safe investments.
133. Due to the fact that investors did not individually purchase MBSs (mortgage-backed
securities) in their investment accounts, they remained unaffected when the value of some of
these investments became worthless.
134. One thing is for certain, the average borrower’s risk-averse behavior did not contribute to
the problems that spiraled out of control and caused the recent banking crisis.
135. Fortunately, the Troubled Assets Relief Program (TARP) took care of the looming
bankruptcy problems of major financial services institutions, and taxpayers were not hit with
additional bailouts.
136. Persons with deposits less than $100,000 in banks, savings and loans, and credit unions
run the risk of losing their money in an economic downturn.
137. The FDIC exists to maintain the public’s confidence in the banking system.
138. When a commercial bank fails, depositors lose all of their money.
139. The FDIC traditionally protects depositors up to $250,000 per account.
140. As a response to a rise in savings and loan failures, the federal government no longer
insures holders of accounts in savings and loan associations.
141. The Savings Association Insurance Fund insures the holders of accounts in savings and
loan associations.
142. The National Credit Union Administration provides coverage up to $250,000 per individual
depositor at each credit union.
143. They say “hindsight is 20/20,” meaning you can usually see things more clearly, with a
much better understanding, after events have occurred. We can say the same for the recent
banking crisis. The practices of several participants (for-profit companies, government regulators,
and customers) came together to create the crisis that caused the collapse of several banks,
financial services companies, and corporations.
144. There is much speculation that prior to the recent banking crisis, the Fed (Federal
Reserve System) and the SEC (Securities and Exchange Commission) were not enforcing the
regulations they were charged to enforce.
145. After the bank failures of the Great Depression, the U.S. government formed three
organizations: the FDIC (Federal Deposit Insurance Corporation); the SAIF (Savings Association
Insurance Fund); and NCUA (National Credit Union Administration) to restore people’s
confidence and insure deposits.
146. Cory worries that his $7,537 in a checking account at the Lottadoe National Bank could
be lost if the bank fails. Lottadoe is a FDIC (Federal Deposit Insurance Corporation) member
bank, which insures Cory’s account up to $250,000.
147. Andrea has three types of deposits at her credit union. She has a checking account in her
own name worth $32,000, a joint savings account with her husband, which currently holds
$95,000, and an IRA account worth $125,449. Her deposits are at risk because they exceed the
148. Existing regulations prohibit online banking activities unless the bank also operates a
traditional brick-and-mortar facility.
149. An electronic funds transfer system (EFT) is an electronic transaction system used for
paying bills, making direct deposits of paychecks, and paying for a purchase.
150. A debit card is better than a credit card because it allows the purchaser to float a short–
term loan, until the credit card company sends the bills at the end of the month.
151. A newer product is the
payroll debit card
. It is cheaper for employers to load your
paycheck on a debit card than to cut a check. This is convenient for customers who do not qualify
for a regular debit or credit card, because they can use it to pay bills, do online purchasing and
even get cash from an ATM machine.
152. High start-up costs cause Internet banks to have higher operating costs than traditional
banks.
153. Internet banks offer customers better interest rates and lower fees because these
businesses avoid the costs of constructing and maintaining a bank building.
154. Although there are many features about online banking that customers do not care for,
they are seldom concerned with security due to continued assurances by the banking industry.
155. In an electronic funds transfer (EFT) system, the information of a transaction is
communicated from one computer to another.
156. Electronic funds transfer (EFT) tools include debit cards, smart cards, direct deposit,
direct payments, and electronic check conversion.
157. Many employers offer
direct deposit
as a convenient and cost-savings method of
distributing employee pay each month.
158. From a bank’s point of view, debit cards and credit cards are treated in identical ways.