Question 1

State banks are regulated by the Comptroller of the Currency.

Accepted Answer

A) True 
 B)False  False

Question 2

Banks that are insured by the Federal Deposit Insurance Corporation (FDIC) are also regulated by the FDIC.

Accepted Answer

A) True 
 B)False  True

Question 3

The act of taking on more risk because of protection from adverse consequences due to the risk is referred to as a moral hazard problem.

Accepted Answer

A) True 
 B)False  True

Question 4

Deposit insurance has a limit of:

Accepted Answer

A)  $10,000. 
B)  $25,000. 
C)  $100,000. 
D)  $250,000. 
A)  $10,000. 
B)  $25,000. 
C)  $100,000. 
D)  $250,000.

Question 5

Which banking act allowed interstate banking?

Accepted Answer

A)  Reigle-Neal Interstate Banking and Branching Efficiency Act 
B)  Glass-Steagall Act 
C)  DIDMCA 
D)  Sarbanes-Oxley Act 
A)  Reigle-Neal Interstate Banking and Branching Efficiency Act 
B)  Glass-Steagall Act 
C)  DIDMCA 
D)  Sarbanes-Oxley Act

Question 6

The liquidity component of the CAMELS rating refers to

Accepted Answer

A)  how a bank's earnings would change if economic conditions change. 
B)  how readily a bank's management would detect its financial problems. 
C)  a bank's sensitivity to financial market conditions. 
D)  the type of loans that a bank provides, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases. 
E)  whether a bank frequently needs to borrow from outside sources, such as the discount window. 
A)  how a bank's earnings would change if economic conditions change. 
B)  how readily a bank's management would detect its financial problems. 
C)  a bank's sensitivity to financial market conditions. 
D)  the type of loans that a bank provides, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases. 
E)  whether a bank frequently needs to borrow from outside sources, such as the discount window.

Question 7

The Glass-Steagall Act of 1933 prevented

Accepted Answer

A)  any firm that accepts deposits from underwriting stocks and bonds of corporations. 
B)  any firm that accepts deposits from underwriting general obligation bonds of states and municipalities. 
C)  any firm that accepts deposits from holding any corporate bonds in its asset portfolio. 
D)  state-chartered banks from offering commercial loans. 
A)  any firm that accepts deposits from underwriting stocks and bonds of corporations. 
B)  any firm that accepts deposits from underwriting general obligation bonds of states and municipalities. 
C)  any firm that accepts deposits from holding any corporate bonds in its asset portfolio. 
D)  state-chartered banks from offering commercial loans.

Question 8

The ____ is the fund used to cover insured depositors.

Accepted Answer

A)  Deposit Insurance Fund 
B)  Federal Deposit Insurance Corporation Fund 
C)  Bank Depository Insurance Fund 
D)  Financial Institution Insurance Fund 
E)  none of the above 
A)  Deposit Insurance Fund 
B)  Federal Deposit Insurance Corporation Fund 
C)  Bank Depository Insurance Fund 
D)  Financial Institution Insurance Fund 
E)  none of the above

Question 9

Which banking act allowed banks to cross state lines in order to acquire a failing institution?

Accepted Answer

A)  McFadden Act 
B)  Glass-Steagall Act 
C)  DIDMCA 
D)  Garn-St Germain Act 
A)  McFadden Act 
B)  Glass-Steagall Act 
C)  DIDMCA 
D)  Garn-St Germain Act

Question 10

A federal bank charter is issued by the

Accepted Answer

A)  Comptroller of the Currency. 
B)  Securities and Exchange Commission. 
C)  U.S. Treasury. 
D)  Federal Reserve. 
E)  none of the above 
A)  Comptroller of the Currency. 
B)  Securities and Exchange Commission. 
C)  U.S. Treasury. 
D)  Federal Reserve. 
E)  none of the above

Question 11

The opening of a commercial bank in the United States

Accepted Answer

A)  does not require a charter. 
B)  always requires a charter from a state government. 
C)  always requires a charter from the federal government. 
D)  requires a charter from a state or the federal government. 
E)  requires a charter from both the state and federal government. 
A)  does not require a charter. 
B)  always requires a charter from a state government. 
C)  always requires a charter from the federal government. 
D)  requires a charter from a state or the federal government. 
E)  requires a charter from both the state and federal government.

Question 12

All Fed member banks must hold

Accepted Answer

A)  private insurance on deposits 
B)  FDIC insurance on deposits. 
C)  both FDIC and private insurance on deposits 
D)  none of the above 
A)  private insurance on deposits 
B)  FDIC insurance on deposits. 
C)  both FDIC and private insurance on deposits 
D)  none of the above

Question 13

The Volcker Rule prohibits banks from sponsoring or holding an ownership interest in a hedge fund or a private equity fund.

Accepted Answer

A) True 
 B)False

Question 14

During the credit crisis, all of the following occurred except:

Accepted Answer

A)  some securities firms were allowed to become bank holding companies. 
B)  the Federal Reserve rescued American International Group, an insurance company. 
C)  the Treasury injected funds into financial institutions. 
D)  the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank. 
A)  some securities firms were allowed to become bank holding companies. 
B)  the Federal Reserve rescued American International Group, an insurance company. 
C)  the Treasury injected funds into financial institutions. 
D)  the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank.

Question 15

____ is not a characteristics used by bank regulators to rate banks.

Accepted Answer

A)  Capital adequacy 
B)  Current stock price 
C)  Asset quality 
D)  Management 
E)  All of the above are used to rate banks. 
A)  Capital adequacy 
B)  Current stock price 
C)  Asset quality 
D)  Management 
E)  All of the above are used to rate banks.

Question 16

Which of the following was not achieved by the Depository Institutions Deregulation and Monetary Control Act of 1980?

Accepted Answer

A)  removed interest rate ceilings on deposits 
B)  allowed banks to offer NOW accounts 
C)  increased competition among depository institutions 
D)  allowed interstate banking for depository institutions in most states 
A)  removed interest rate ceilings on deposits 
B)  allowed banks to offer NOW accounts 
C)  increased competition among depository institutions 
D)  allowed interstate banking for depository institutions in most states

Question 17

The argument that interstate banking would allow banks to grow and more fully achieve a reduction in operating costs per unit of output as output increases is based on

Accepted Answer

A)  economies of scale. 
B)  financial leverage. 
C)  diseconomies of scale 
D)  capital adequacy theory 
A)  economies of scale. 
B)  financial leverage. 
C)  diseconomies of scale 
D)  capital adequacy theory

Question 18

The moral hazard problem is minimized when deposit insurance premiums are

Accepted Answer

A)  zero (not imposed by the FDI
C) . 
B)  the same percentage of deposits for all banks. 
C)  set at a fixed percentage of deposits for large banks, and at zero for small banks. 
D)  set at a percentage of deposits that is based on the bank's risk. 
A)  zero (not imposed by the FDI
C) . 
B)  the same percentage of deposits for all banks. 
C)  set at a fixed percentage of deposits for large banks, and at zero for small banks. 
D)  set at a percentage of deposits that is based on the bank's risk.

Question 19

Which of the following was not a provision of the Financial Reform Act (Dodd-Frank Act) of 2010?

Accepted Answer

A)  established the Financial Stability Oversight Council 
B)  put limits on banks' proprietary trading 
C)  established the Consumer Financial Protection Bureau 
D)  reestablished the separation between banking and securities activities that had existed under the Glass-Steagall Act 
E)  required derivative securities to be traded through a clearinghouse or exchange 
A)  established the Financial Stability Oversight Council 
B)  put limits on banks' proprietary trading 
C)  established the Consumer Financial Protection Bureau 
D)  reestablished the separation between banking and securities activities that had existed under the Glass-Steagall Act 
E)  required derivative securities to be traded through a clearinghouse or exchange

Question 20

Which of the following is not a corrective action that regulators may take when a bank is identified as a problem bank?

Accepted Answer

A)  examine the bank frequently and thoroughly 
B)  request that the bank boost its capital level or delay its plans to expand 
C)  require the bank to provide additional financial information that is periodically updated to allow continued monitoring 
D)  take legal action against the bank if it does not comply with their suggested remedies 
E)  All of the above are possible corrective actions taken by bank regulators. 
A)  examine the bank frequently and thoroughly 
B)  request that the bank boost its capital level or delay its plans to expand 
C)  require the bank to provide additional financial information that is periodically updated to allow continued monitoring 
D)  take legal action against the bank if it does not comply with their suggested remedies 
E)  All of the above are possible corrective actions taken by bank regulators.

Exam 18: Bank Regulation

State banks are regulated by the Comptroller of the Currency.

Banks that are insured by the Federal Deposit Insurance Corporation (FDIC) are also regulated by the FDIC.

The act of taking on more risk because of protection from adverse consequences due to the risk is referred to as a moral hazard problem.

Deposit insurance has a limit of:

Which banking act allowed interstate banking?

The liquidity component of the CAMELS rating refers to

The Glass-Steagall Act of 1933 prevented

The ____ is the fund used to cover insured depositors.

Which banking act allowed banks to cross state lines in order to acquire a failing institution?

A federal bank charter is issued by the

The opening of a commercial bank in the United States

All Fed member banks must hold

The Volcker Rule prohibits banks from sponsoring or holding an ownership interest in a hedge fund or a private equity fund.

During the credit crisis, all of the following occurred except:

____ is not a characteristics used by bank regulators to rate banks.

Which of the following was not achieved by the Depository Institutions Deregulation and Monetary Control Act of 1980?

The argument that interstate banking would allow banks to grow and more fully achieve a reduction in operating costs per unit of output as output increases is based on

The moral hazard problem is minimized when deposit insurance premiums are

Which of the following was not a provision of the Financial Reform Act (Dodd-Frank Act) of 2010?

Which of the following is not a corrective action that regulators may take when a bank is identified as a problem bank?

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

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