Question 1

What changes to foreign bank operations in the United States have been brought about by the Foreign Bank Supervision and Enhancement Act of 1991?

Accepted Answer

*Foreign banks must now have the Fed's approval to establish a U.S. operation. The Fed will not grant such approval unless the foreign bank is subject to home country supervision. The Fed also requires the home country regulators to supply information about the applicant bank to the Fed.
*The Fed may close the U.S. operations of a foreign bank (as they did with Daiwa).
*The Fed will examine each U.S. operation of a foreign bank.
*Only foreign banks with access to FDIC insurance can take retail deposits.
*State-licensed foreign banks must adhere to federal standards.

Question 2

To be well-capitalized,a bank must have a leverage ratio of at least ____________ percent,Tier I capital to risk-adjusted asset ratio of at least ____________ percent,and a total risk-based capital ratio of at least ___________ percent.

Accepted Answer

A) 4; 4; 8 
B) 5; 6; 10 
C) 3; 3; 8 
D) 4; 8; 4 
E) 4; 6; 10 
A) 4; 4; 8 
B) 5; 6; 10 
C) 3; 3; 8 
D) 4; 8; 4 
E) 4; 6; 10 B

Question 3

How do risk-based deposit insurance premiums and risk-based capital requirements help reduce the moral hazard problem of deposit insurance?
 (Hint:
 Moral hazard means that because of deposit insurance,banks may take on excessive amounts of risk.)

Accepted Answer

Both force bank managers to be cognizant of the risk level they are undertaking and impose a penalty function on managers who engage in additional risk. This helps replace the lost market discipline (higher borrowing rates for banks that take on more risk)brought about by deposit insurance and the "too big to fail" practice.

Question 4

A bank has Tier 1 capital of $90 million and Tier 2 capital of $70 million. The bank has total assets of $2,522 million and risk-weighted assets of $2,017.6 million. This bank is

Accepted Answer

A) critically undercapitalized. 
B) significantly undercapitalized. 
C) undercapitalized. 
D) adequately capitalized. 
E) well-capitalized. 
A) critically undercapitalized. 
B) significantly undercapitalized. 
C) undercapitalized. 
D) adequately capitalized. 
E) well-capitalized.

Question 5

The law that largely repealed the Depression era banking laws was the

Accepted Answer

A) Depository Institution Deregulation and Monetary Control Act of 1980. 
B) Financial Services Modernization Act. 
C) FIRRE Act. 
D) International Banking Act. 
E) None of the options. 
A) Depository Institution Deregulation and Monetary Control Act of 1980. 
B) Financial Services Modernization Act. 
C) FIRRE Act. 
D) International Banking Act. 
E) None of the options.

Question 6

The layers of regulation imposed on banks to protect depositors against bank failure are termed credit allocation regulations.

Accepted Answer

A) True 
 B)False

Question 7

Among other things,the Financial Institutions Reform,Recovery,and Enforcement Act stipulated the creation of the

Accepted Answer

A) FDIC. 
B) OTS. 
C) OCC. 
D) Warren Commission. 
E) CRA. 
A) FDIC. 
B) OTS. 
C) OCC. 
D) Warren Commission. 
E) CRA.

Question 8

(a)A bank has risk-weighted assets of $175 and equity of $12.5. If regulators require a minimum risk-weighted capital ratio of 5 percent given the current level of equity,how many new assets with a 100 percent risk weight can the bank add?
 How many with a 50 percent risk weight?
(b)If the bank had 20 percent more equity,how many new assets with a 100 percent risk weight could the bank add?
 How many with a 50 percent risk weight?
 How does having more equity affect a bank's ability to grow?
 How is this growth affected by the riskiness of the bank's assets?

Accepted Answer

(a)100 percent risk weight
[$175 + New A

Question 9

The FDIC insures bank deposits and the OTS insures thrift deposits.

Accepted Answer

A) True 
 B)False

Question 10

The CRA of 1977 and the HMDA of 1975 are examples of consumer protection regulations.

Accepted Answer

A) True 
 B)False

Question 11

All banks located in the European Union offer deposits that are insured for __________ euros,although depositors are subject to a _________________ in the event of loss.

Accepted Answer

A) 100,000; 2.5 percent insurance premium 
B) 50,000; 95 percent recovery rate 
C) 50,000; 10 percent deductible 
D) 45,000; 5 percent fine 
E) 75,000; 90 percent recovery rate 
A) 100,000; 2.5 percent insurance premium 
B) 50,000; 95 percent recovery rate 
C) 50,000; 10 percent deductible 
D) 45,000; 5 percent fine 
E) 75,000; 90 percent recovery rate

Question 12

A securities subsidiary of a bank holding company that engages in investment banking is called a Riegle-Neal affiliate.

Accepted Answer

A) True 
 B)False

Question 13

A financial intermediary that can engage in a broad range of financial service activities is termed a universal FI.

Accepted Answer

A) True 
 B)False

Question 14

The FDIC may require an undercapitalized bank to
I. provide the FDIC with a capital restoration plan.
II. cease acquiring brokered deposits.
III. obtain FDIC approval for all acquisitions.
IV. suspend dividends and management fees.
V. suspend payments on subordinated debt.

Accepted Answer

A) I and II only 
B) III only 
C) I,II,III,and IV only 
D) I,II,III,IV,and V 
E) I,II,III,and V only 
A) I and II only 
B) III only 
C) I,II,III,and IV only 
D) I,II,III,IV,and V 
E) I,II,III,and V only

Question 15

There were a greater number of bank failures from 1980 to 1990 inclusive than from 1934 to 1979.

Accepted Answer

A) True 
 B)False

Question 16

In the post-Depression era the largest number of bank failures occurred in which time period?

Accepted Answer

A) 1955-1965 
B) 1965-1975 
C) 1975-1985 
D) 1985-1995 
E) 1995-2005 
A) 1955-1965 
B) 1965-1975 
C) 1975-1985 
D) 1985-1995 
E) 1995-2005

Question 17

Requiring foreign banks to operate under the same rules as domestic banks is termed

Accepted Answer

A) favored status. 
B) IBA clause. 
C) national treatment. 
D) NAFTA. 
E) post-patriotism requirement. 
A) favored status. 
B) IBA clause. 
C) national treatment. 
D) NAFTA. 
E) post-patriotism requirement.

Question 18

FDIC deposit insurance is generally limited to ________________ per depositor per bank.

Accepted Answer

A) $50,000 
B) $100,000 
C) $150,000 
D) $200,000 
E) $250,000 
A) $50,000 
B) $100,000 
C) $150,000 
D) $200,000 
E) $250,000

Question 19

Areas of commercial bank regulation dealing with preventing banks from discriminating unfairly in lending are termed ______________________ regulations. rev:
10_17_2013_QC_37326

Accepted Answer

A) safety and soundness 
B) consumer protection 
C) investor protection 
D) credit allocation 
E) monetary policy 
A) safety and soundness 
B) consumer protection 
C) investor protection 
D) credit allocation 
E) monetary policy

Question 20

In the United States,regulators currently use a ________________ to calculate required reserve balances.

Accepted Answer

A) lagged reserve accounting system 
B) contemporaneous reserve system 
C) homoscedastic reserve system 
D) two-day computation period 
E) accrual accounting period 
A) lagged reserve accounting system 
B) contemporaneous reserve system 
C) homoscedastic reserve system 
D) two-day computation period 
E) accrual accounting period

Exam 13: Regulation of Commercial Banks

What changes to foreign bank operations in the United States have been brought about by the Foreign Bank Supervision and Enhancement Act of 1991?

To be well-capitalized,a bank must have a leverage ratio of at least ____________ percent,Tier I capital to risk-adjusted asset ratio of at least ____________ percent,and a total risk-based capital ratio of at least ___________ percent.

How do risk-based deposit insurance premiums and risk-based capital requirements help reduce the moral hazard problem of deposit insurance? (Hint: Moral hazard means that because of deposit insurance,banks may take on excessive amounts of risk.)

A bank has Tier 1 capital of $90 million and Tier 2 capital of $70 million. The bank has total assets of $2,522 million and risk-weighted assets of $2,017.6 million. This bank is

The law that largely repealed the Depression era banking laws was the

The layers of regulation imposed on banks to protect depositors against bank failure are termed credit allocation regulations.

Among other things,the Financial Institutions Reform,Recovery,and Enforcement Act stipulated the creation of the

The FDIC insures bank deposits and the OTS insures thrift deposits.

The CRA of 1977 and the HMDA of 1975 are examples of consumer protection regulations.

All banks located in the European Union offer deposits that are insured for __________ euros,although depositors are subject to a _________________ in the event of loss.

A securities subsidiary of a bank holding company that engages in investment banking is called a Riegle-Neal affiliate.

A financial intermediary that can engage in a broad range of financial service activities is termed a universal FI.

The FDIC may require an undercapitalized bank to I. provide the FDIC with a capital restoration plan. II. cease acquiring brokered deposits. III. obtain FDIC approval for all acquisitions. IV. suspend dividends and management fees. V. suspend payments on subordinated debt.

There were a greater number of bank failures from 1980 to 1990 inclusive than from 1934 to 1979.

In the post-Depression era the largest number of bank failures occurred in which time period?

Requiring foreign banks to operate under the same rules as domestic banks is termed

FDIC deposit insurance is generally limited to ________________ per depositor per bank.

Areas of commercial bank regulation dealing with preventing banks from discriminating unfairly in lending are termed ______________________ regulations. rev: 10_17_2013_QC_37326

In the United States,regulators currently use a ________________ to calculate required reserve balances.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

To be well-capitalized,a bank must have a leverage ratio of at least __ percent,Tier I capital to risk-adjusted asset ratio of at least percent,and a total risk-based capital ratio of at least _ percent.

All banks located in the European Union offer deposits that are insured for euros,although depositors are subject to a _______ in the event of loss.