Exam 16: Thrift Institutions and Finance Companies

Adjustable rate mortgages insulate help thrifts against credit risk.

Mutual institutions are not for profit whereas stockholder institutions are managed to make the most profits they can.

Federal regulations still prevent finance companies from operating across state lines.

Credit union "centrals" pool individual credit union funds to provide cheaper investments and liquidity.

Consumer protection legislation has had an impact on the pricing of finance companies services.

Most credit unions have a lower cost structure than commercial banks.

S&Ls were originally established to take advantage of a tax loophole.

The thrift crisis of the 1980s was caused by a combination of unsound lending practices and inadequate interest rate risk management.

A finance company typically worries more about credit risk than interest rate risk.

Credit unions have higher loan losses than commercial banks.

Explain how finance companies and depository institutions might differ in managing credit risk.

Thrifts face less interest rate risk and manage it better than they did in the past.

The fixed cost of loan origination and servicing explains why finance companies prefer small shorter-term loans over large longer-term loans.

The U.S. Central Credit Union is a principal regulator of credit unions.

Mortgages remain the most important asset of savings institutions.

Credit unions are exempt from federal income tax on income from financial assets.

Congress gave thrifts the right to make consumer loans so they could diversify their assets and shorten their asset durations.

In general, commercial banks have a higher concentration of mortgage related assets on the balance sheet than savings institutions.

Of finance companies, savings institutions and credit unions, as a percentage of assets, finance companies have the lowest dependence on deposit sources of funds.

Consumer finance companies borrow in large amounts and lend in small amounts.