1. A universal FI is an FI that has expanded its operations across country lines.
2. Banks increasingly have been susceptible to nonbank competition on both sides of the balance sheet.
3. The commercial paper market is an example of nonbank competition on the asset side of the balance sheet
that has become increasingly intense for banks.
4. In the U.S., the Glass-Steagall Act limited the integration of commercial banking and securities activities.
5. The Glass-Steagall Act allowed commercial banks to underwrite new issues of Treasury securities.
6. Section 20 affiliates allow banks to transact previously ineligible securities activities.
7. Banks have been permitted to acquire existing investment banks since 1997.
8. In the banking environment, economic and legal firewalls often have been designed to separate the risks of
investment bank affiliate activities from commercial banks.
9. In recent years, commercial banks have attempted to expand their activities into nonbanking areas, but
securities firms have not been interested in expanding into commercial banking.
10. The Financial Services Modernization Act repealed the Glass-Steagall barriers between commercial banking
and investment banking.
11. Historically, commercial banks have been prohibited from acting as an underwriter of insurance products.
12. The Financial Services Modernization Act of 1999 allows bank holding companies to open insurance
underwriting affiliates.
13. The Financial Services Modernization Act of 1999 prohibits insurance companies from opening commercial
banks.
14. Under the Financial Services Modernization Act of 1999, commercial banks can own and actively manage
nonfinancial corporations.
15. The barriers among nonbank financial service firms and commercial firms are generally much stronger than
the barriers separating banking and commercial sector activities.
16. The Financial Services Modernization Act of 1999 has provided for more standardized relationships among
financial service sectors and commerce.
17. A fully integrated universal bank allows a bank to engage in securities activities only through a separately
owned securities affiliate.
18. The safety and soundness of a holding company that has both a bank subsidiary and a securities affiliate can
be enhanced over time by the product diversification benefits of a more stable earnings stream caused by having
well-diversified financial services.
19. Research suggests that the total risk exposure of a financial services organization could actually increase if
there is excessive product expansion in some nonbank lines.
20. Economies of scope opportunities seem to be available in the financial services industry, but economies of
scale opportunities do not seem to exist.
21. Information transfer refers to the conflict of interest that occurs when banks have the power to sell nonbank
products.
22. The conflict of interest that occurs when a bank suggests the issuance of capital market debt for the purpose
of reducing bank loans under conditions of deteriorating or questionable firm financial health is commonly
referred to as bankruptcy risk transference.
23. The process of using lending power to coerce a loan customer to use products sold by a securities affiliate is
called information transfer.
24. Tie-ins and third-party loans are prohibited by current bank regulations.
25. Chinese walls are barriers within organizations that limit the flow of confidential information between
departments of business areas.
26. The existence of the “too big to fail” doctrine may encourage large banks to take excessive risks in securities
underwriting activities.
27. The required monitoring and surveillance efforts of several regulatory bodies in the case of large holding
companies with multi-subsidiaries may actually decrease the efficiency of regulatory oversight.
28. Increased competition for securities underwritings should reduce the spreads and thus lower the price paid
for the securities by the investing public.
29. Expansion on a de novo basis implies the establishment and construction of a new office in a location where
previously no office existed.
30. Historically regulations have encouraged the expansion of bank offices domestically.
31. Banks typically have faced few restrictions in expanding their businesses, while securities firms and
insurance companies have faced complex rules regarding expansion.
32. The establishment of a presence in local markets by insurance companies is reasonably inexpensive because
of low capital requirements established by state regulators.
33. In the middle part of the twentieth century, large banks addressed the issue of interstate branch banking
restrictions by forming multibank holding companies with bank subsidiaries in different states.
34. A one bank holding company is a parent bank holding company with only one subsidiary involved in
banking activities.
35. By the early 1990s interstate banking pacts basically had opened the doors for nearly all banks to practice
interstate branching in any geographic location.
36. Reciprocal banking pacts allowed the non-state companies to purchase banks as long as the purchase
permission went in both directions.
37. Interstate banking barriers have deteriorated in part because of the decisions to deal with the failing thrift
industry by allowing acquiring firms to cross state lines.
38. The Garn-St Germain Act is an interstate banking law that allows banks to branch on an interstate basis
rather than building more expensive holding company structures.
39. In order to achieve a more stable revenue stream in a merger, the asset and liability portfolios of the two
institutions should have similar credit, interest rate, and liquidity characteristics.
40. Success in a merger from revenue enhancement is more likely if the markets into which expansion occurs
are less than fully competitive.
41. The use of the Herfindahl-Hirschman Index (HHI) to measure market concentration is encouraged for banks
because of the ease of separating banks from thrifts and insurance companies.
42. Merger premiums tend to be higher for target banks in competitive environments, but for which the target
bank’s loan portfolios are of high quality.
43. Research on bank mergers for the decade of the 1990s found that improved performance of the merged bank
occurred because of both revenue enhancements and cost reduction.
44. U.S. financial institutions have expanded abroad in recent years, although their foreign counterparts have
been prohibited from expanding into the U.S.
45. The emergence of the Euro as a uniform medium of exchange is expected to cause the importance of the
dollar to increase among major European countries.
46. The USA Patriot Act of 2001 prohibits U.S. banks from providing banking services to foreign banks.
47. U.S. banking offices abroad normally are permitted by the Federal Reserve System to engage in activities
that are allowed in the foreign country even when such activities are not permitted in the U.S.
48. The NAFTA agreement and other agreements reached through the help of the World Trade Organization
should reduce some of the restrictions that have face U.S. banks in attempts to enter emerging market
countries.
49. Large size is an important characteristic in international banking because it gives a bank a greater ability to
diversify across borders.
50. The European Community Second Banking Directive has aided the international competitive position of
European banks by creating a single banking market in Europe.
51. A foreign bank subsidiary in the U.S. is restricted to using only funds borrowed on the wholesale and money
markets.
52. The International Banking Act of 1978 attempted to provide a level playing field for domestic and foreign
banks in U.S. banking markets.
53. The effect of the International Banking Act of 1978 was to accelerate the expansion of foreign bank
activities in the U.S. primarily because of their access to the Federal Reserve’s discount window, Fedwire, and
FDIC insurance.
54. The purpose of the Foreign Bank Supervision Enhancement Act of 1991 was to extend federal authority
over foreign banking organizations in the U.S.
55. The FBSEA of 1991 required a foreign bank to have Fed approval to establish a branch as a new entry, but
does not require such approval if the entry is by acquisition.
56. Offices of foreign banks may be examined by the Federal Reserve under the FBSEA of 1991.
57. One result of the FBSEA was the increase in the regulatory burden of foreign banks in the U.S.
58. International expansion by a commercial bank should provide increased access to funding sources.
59. International expansion often produces revenue-risk diversification benefits for U.S. banks.
60. A disadvantage to international bank expansion is the potential increase in the monitoring and information
collection costs in some overseas markets.
61. Commercial banks have expanded their activities in each of the following ways EXCEPT
62. The banking industry in the U.S. has faced increased competition
63. Which of the following has proven to be strong competition for bank deposit and transaction account
products?
64. Nonbank institutions have NOT gained competitive momentum for which of the following financial
products?
65. The economic value of narrowly defined bank franchises has declined because
66. The Pecora Commission’s findings about the 1929 stock market crash resulted in the
67. Identify the action taken by OCC and the Federal Reserve in 1997, to expand the permitted activities of
bank holding companies.
68. Permissible section 20 subsidiary activities include
69. This legislation restricts insurance companies from owning or being affiliated with full service banks.
70. This legislation defines a bank as any institution that accepts deposit insurance coverage.
71. This legislation explicitly stated that banking and insurance were not closely related activities.
72. The Financial Services Modernization Act allowed for
73. The Financial Services Modernization Act of 1999
74. How could insurance companies get around the restrictive provisions imposed by the bank holding company
act of 1956?
75. A bank holding company must obtain the approval of the Fed before acquiring more than ____ of the shares
of an additional bank, bank holding company, or financial services
firm.
76. Which of the following describes a firm commitment underwriting?
77. In firm commitment underwriting, the underwriter’s spread is
78. An investment bank may take a big loss when underwriting an issue on a firm commitment basis because
79. If the firm commitment price is $15 and one million shares are sold in the primary market for $15.50 and
then resold in the secondary market for $15.75, what is the underwriter’s profit/loss?
80. If the firm commitment price is $15 and one million shares are sold in the primary market for $13 and then
resold in the secondary market for $13.25, what is the underwriter’s profit/loss?
81. An underwriter is quoting the following rates for the issue of new securities on behalf of a firm on a firm
commitment basis: $64.00-64.25. 2,000,000 shares are being offered.
82. A bank holding company has a banking affiliate and a securities affiliate. If the securities affiliate fails, it
could cause the bank to also fail because
83. Which of the following is not a reasonable argument for the increase in the number of banks that can
compete in security underwriting activities?
84. Which action of the holding company to help its securities affiliate can damage the financial health of its
banking subsidiary?
85. Identify a condition under which conflicts of interest are exploitable.
86. Which of the following is NOT a potential conflict of interest identified by regulators and academics?
87. Concern about bank solvency has been used to justify product segmentation on the grounds of
88. Concern about the cost of managing a widely diversified financial company has been used to justify product
segmentation on the grounds of
89. Concern about the improper transfer of inside information has been used to justify product segmentation on
the grounds of