Question 1

That taxpayers were poorly served by thrift regulators in the 1980s is now quite clear. This poor performance is explained by

Accepted Answer

A) regulators' desire to escape blame for poor performance, leading to a perverse strategy of "regulatory gambling." 
B) regulators' incentives to accede to pressures imposed by politicians, who sought to keep regulators from imposing tough regulations on institutions that were major campaign contributors. 
C) Congress's unwillingness to appropriate sufficient funds to permit regulators to examine the many thrift institutions that needed monitoring. 
D) all of the above. 
E) only A and B of the above. 
A) regulators' desire to escape blame for poor performance, leading to a perverse strategy of "regulatory gambling." 
B) regulators' incentives to accede to pressures imposed by politicians, who sought to keep regulators from imposing tough regulations on institutions that were major campaign contributors. 
C) Congress's unwillingness to appropriate sufficient funds to permit regulators to examine the many thrift institutions that needed monitoring. 
D) all of the above. 
E) only A and B of the above.

Question 2

Mutual savings banks are concentrated in the ________ United States.

Accepted Answer

A) northeastern 
B) southeastern 
C) western 
D) all of the above 
A) northeastern 
B) southeastern 
C) western 
D) all of the above

Question 3

Why did the Competitive Equality in Banking Act of 1987 fail to solve the problems in the thrift industry?

Accepted Answer

The Competitive Equality in Banking Act

Question 4

Credit unions' main source of funds is ________.

Accepted Answer

A) regular share accounts 
B) share certificates 
C) share draft accounts 
D) money market accounts 
A) regular share accounts 
B) share certificates 
C) share draft accounts 
D) money market accounts

Question 5

When nearly half of the S&Ls in the United States had a negative net worth and were thus insolvent by the end of 1982, regulators adopted a policy of ________, which amounted to ________ capital requirements.

Accepted Answer

A) regulatory forbearance; raising 
B) regulatory forbearance; lowering 
C) regulatory stringency; raising 
D) regulatory stringency; lowering 
A) regulatory forbearance; raising 
B) regulatory forbearance; lowering 
C) regulatory stringency; raising 
D) regulatory stringency; lowering

Question 6

Mutual savings banks

Accepted Answer

A) are heavily concentrated in mortgages. 
B) have more flexibility in their investing practices. 
C) are both A and B of the above. 
D) are neither A nor B of the above. 
A) are heavily concentrated in mortgages. 
B) have more flexibility in their investing practices. 
C) are both A and B of the above. 
D) are neither A nor B of the above.

Question 7

How has the thrift industry been transformed since FIRREA?

Accepted Answer

The thrift industry, which primarily con

Question 8

The purpose of reserve requirements

Accepted Answer

A) is to limit the expansion of the money supply. 
B) is to ensure adequate liquidity for the institutions. 
C) is both A and B of the above. 
D) is neither A nor B of the above. 
A) is to limit the expansion of the money supply. 
B) is to ensure adequate liquidity for the institutions. 
C) is both A and B of the above. 
D) is neither A nor B of the above.

Question 9

Credit unions view commercial banks as government-supported and hence unfair competitors due to their tax advantages.

Accepted Answer

A) True 
 B)False

Question 10

The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers because

Accepted Answer

A) of regulators' initial attempts to downplay the seriousness of problems within the thrift industry. 
B) politicians who received generous campaign contributions from the savings and loan industry, like regulators, hoped that the problems in the industry would ease over time. 
C) Congress encouraged, and thrift regulators acceded to, a policy of regulatory forbearance. 
D) of all of the above. 
E) of only A and B of the above. 
A) of regulators' initial attempts to downplay the seriousness of problems within the thrift industry. 
B) politicians who received generous campaign contributions from the savings and loan industry, like regulators, hoped that the problems in the industry would ease over time. 
C) Congress encouraged, and thrift regulators acceded to, a policy of regulatory forbearance. 
D) of all of the above. 
E) of only A and B of the above.

Question 11

The second major liability of savings and loans is borrowings.

Accepted Answer

A) True 
 B)False

Question 12

What factors contributed to creating the thrift crisis?

Accepted Answer

Several factors contributed to creating

Question 13

The Competitive Equality in Banking Act of 1987 allowed the FSLIC to borrow all the funds it needed to close insolvent S&Ls and pay off depositors.

Accepted Answer

A) True 
 B)False

Question 14

The Competitive Equality in Banking Act of 1987

Accepted Answer

A) discouraged regulators from pursuing regulatory forbearance. 
B) directed regulators to close "zombie S&Ls" as quickly as administratively possible. 
C) encouraged regulators to continue their policy of regulatory forbearance. 
D) did both A and B of the above. 
A) discouraged regulators from pursuing regulatory forbearance. 
B) directed regulators to close "zombie S&Ls" as quickly as administratively possible. 
C) encouraged regulators to continue their policy of regulatory forbearance. 
D) did both A and B of the above.

Question 15

The mutual form of ownership accentuates the principal-agent problem that exists in corporations.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements concerning the mutual form of ownership of savings banks are true?

Accepted Answer

A) The mutual form of ownership accentuates the principal-agent problem that exists in corporations. 
B) More capital is available, contributing to the safety of mutual savings banks compared to other banking organizations. 
C) Managers of mutual savings banks are more risk averse than in the corporate form, because the value of their ownership does not increase if the firm does well. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) The mutual form of ownership accentuates the principal-agent problem that exists in corporations. 
B) More capital is available, contributing to the safety of mutual savings banks compared to other banking organizations. 
C) Managers of mutual savings banks are more risk averse than in the corporate form, because the value of their ownership does not increase if the firm does well. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 17

Politicians have ________ incentives to act in their own interests rather than in the interests of taxpayers.

Accepted Answer

A) no 
B) strong 
C) weak 
D) low 
A) no 
B) strong 
C) weak 
D) low

Question 18

The government granted thrifts greater powers in the early 1980s in hopes of turning the industry's problems around. These powers

Accepted Answer

A) required greater expertise in managing risk than many thrift managers possessed. 
B) encouraged thrifts to expand lending rapidly in real estate, increasing their exposure to risk. 
C) expanded the scope and complexity of thrift lending activities that went beyond what regulators could effectively monitor, given their limited resources. 
D) did all of the above. 
E) did only A and B of the above. 
A) required greater expertise in managing risk than many thrift managers possessed. 
B) encouraged thrifts to expand lending rapidly in real estate, increasing their exposure to risk. 
C) expanded the scope and complexity of thrift lending activities that went beyond what regulators could effectively monitor, given their limited resources. 
D) did all of the above. 
E) did only A and B of the above.

Question 19

The main source of funds at savings and loan associations is

Accepted Answer

A) borrowing in the money market. 
B) borrowing in the capital market. 
C) deposits. 
D) equity capital. 
A) borrowing in the money market. 
B) borrowing in the capital market. 
C) deposits. 
D) equity capital.

Question 20

Listing large amounts of goodwill as an asset is another way that savings and loans are able to hide the fact that they are insolvent.

Accepted Answer

A) True 
 B)False

Exam 25: Savings Associations and Credit Unions

That taxpayers were poorly served by thrift regulators in the 1980s is now quite clear. This poor performance is explained by

Mutual savings banks are concentrated in the ________ United States.

Why did the Competitive Equality in Banking Act of 1987 fail to solve the problems in the thrift industry?

Credit unions' main source of funds is ________.

When nearly half of the S&Ls in the United States had a negative net worth and were thus insolvent by the end of 1982, regulators adopted a policy of ________, which amounted to ________ capital requirements.

Mutual savings banks

How has the thrift industry been transformed since FIRREA?

The purpose of reserve requirements

Credit unions view commercial banks as government-supported and hence unfair competitors due to their tax advantages.

The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers because

The second major liability of savings and loans is borrowings.

What factors contributed to creating the thrift crisis?

The Competitive Equality in Banking Act of 1987 allowed the FSLIC to borrow all the funds it needed to close insolvent S&Ls and pay off depositors.

The Competitive Equality in Banking Act of 1987

The mutual form of ownership accentuates the principal-agent problem that exists in corporations.

Which of the following statements concerning the mutual form of ownership of savings banks are true?

Politicians have ________ incentives to act in their own interests rather than in the interests of taxpayers.

The government granted thrifts greater powers in the early 1980s in hopes of turning the industry's problems around. These powers

The main source of funds at savings and loan associations is

Listing large amounts of goodwill as an asset is another way that savings and loans are able to hide the fact that they are insolvent.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Finance Companies

Filters

When nearly half of the S&Ls in the United States had a negative net worth and were thus insolvent by the end of 1982, regulators adopted a policy of , which amounted to capital requirements.