Question 1

The Competitive Equality in Banking Act of 1987

Accepted Answer

A) provided insufficient funds to the FSLIC to close down insolvent S&Ls. 
B) actually directed S&L regulators to continue to pursue regulatory forbearance, further delaying the closing of insolvent S&Ls. 
C) created a new agency, the Resolution Trust Corporation, to manage insolvent thrifts. 
D) did all of the above. 
E) did only A and B of the above. 
A) provided insufficient funds to the FSLIC to close down insolvent S&Ls. 
B) actually directed S&L regulators to continue to pursue regulatory forbearance, further delaying the closing of insolvent S&Ls. 
C) created a new agency, the Resolution Trust Corporation, to manage insolvent thrifts. 
D) did all of the above. 
E) did only A and B of the above.

Question 2

Savings banks

Accepted Answer

A) were first established in Scotland and England. 
B) were established to encourage saving by the poor. 
C) were very conservative with their funds, placing most of them in commercial banks. 
D) are all of the above. 
E) are only A and B of the above. 
A) were first established in Scotland and England. 
B) were established to encourage saving by the poor. 
C) were very conservative with their funds, placing most of them in commercial banks. 
D) are all of the above. 
E) are only A and B of the above.

Question 3

An analysis of the political economy of the savings and loan crisis helps one to understand

Accepted Answer

A) why politicians hampered the efforts of thrift regulators, cutting regulatory appropriations and encouraging regulatory forbearance. 
B) why thrift regulators were reluctant to admit that any problem even existed in the thrift industry. 
C) why thrift regulators willingly acceded to pressures placed upon them by members of Congress. 
D) all of the above. 
E) only A and B of the above. 
A) why politicians hampered the efforts of thrift regulators, cutting regulatory appropriations and encouraging regulatory forbearance. 
B) why thrift regulators were reluctant to admit that any problem even existed in the thrift industry. 
C) why thrift regulators willingly acceded to pressures placed upon them by members of Congress. 
D) all of the above. 
E) only A and B of the above.

Question 4

Most credit unions today have federal charters.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about mutual savings banks are true?

Accepted Answer

A) There are currently under 200 mutual savings banks in the United States. 
B) Most mutual savings banks are federally chartered. 
C) Both A and B of the above are true. 
D) None of the above are true. 
A) There are currently under 200 mutual savings banks in the United States. 
B) Most mutual savings banks are federally chartered. 
C) Both A and B of the above are true. 
D) None of the above are true.

Question 6

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 7

Which of the following are reasons that explain why regulators pursued a policy of regulatory forbearance toward thrifts in the early 1980s?

Accepted Answer

A) Regulators knew that the FSLIC did not have sufficient funds to close insolvent S&Ls and pay off their depositors. 
B) Regulators were probably too close to the people they were supposed to be regulating to close down thrifts and put them out of business. 
C) Regulators preferred to sweep the problems that thrifts were suffering under the rug in the hope that they would go away as the economy improved. 
D) All of the above explain regulatory forbearance. 
E) Only A and B of the above explain regulatory forbearance. 
A) Regulators knew that the FSLIC did not have sufficient funds to close insolvent S&Ls and pay off their depositors. 
B) Regulators were probably too close to the people they were supposed to be regulating to close down thrifts and put them out of business. 
C) Regulators preferred to sweep the problems that thrifts were suffering under the rug in the hope that they would go away as the economy improved. 
D) All of the above explain regulatory forbearance. 
E) Only A and B of the above explain regulatory forbearance.

Question 8

The smallest average-sized depository institution is ________.

Accepted Answer

A) credit unions 
B) savings and loan associations 
C) commercial banks 
D) money market mutual funds 
A) credit unions 
B) savings and loan associations 
C) commercial banks 
D) money market mutual funds

Question 9

The second major liability of savings and loans is borrowings.

Accepted Answer

A) True 
 B)False

Question 10

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 11

That several hundred S&Ls were not even examined once in the period January 1984 through June 1986 can be explained by

Accepted Answer

A) Congress's unwillingness to allocate the necessary funds to thrift regulators. 
B) regulators' reluctance to find the specific problem thrifts that they knew existed. 
C) prohibitions against onerous regulatory restrictions against S&Ls as mandated in the Competitive Equality in Banking Act. 
D) all of the above. 
E) only A and B of the above. 
A) Congress's unwillingness to allocate the necessary funds to thrift regulators. 
B) regulators' reluctance to find the specific problem thrifts that they knew existed. 
C) prohibitions against onerous regulatory restrictions against S&Ls as mandated in the Competitive Equality in Banking Act. 
D) all of the above. 
E) only A and B of the above.

Question 12

Federal legislation allows credit unions representing groups with different common bonds to merge into a single credit union.

Accepted Answer

A) True 
 B)False

Question 13

Examiners from the Federal Home Loan Bank Board of San Francisco recommended that Lincoln Savings and Loan be seized when they discovered that

Accepted Answer

A) officials at the thrift had attempted to mislead them. 
B) it had exceeded the 10 percent limit on equity investments by $600 million. 
C) its owner, Charles Keating, had been convicted of embezzlement ten years before he purchased the thrift. 
D) all of the above occurred. 
E) only A and B of the above occurred. 
A) officials at the thrift had attempted to mislead them. 
B) it had exceeded the 10 percent limit on equity investments by $600 million. 
C) its owner, Charles Keating, had been convicted of embezzlement ten years before he purchased the thrift. 
D) all of the above occurred. 
E) only A and B of the above occurred.

Question 14

The capital of financial institutions is often measured by the ________ ratio.

Accepted Answer

A) current 
B) net worth 
C) asset turnover 
D) liquidity 
A) current 
B) net worth 
C) asset turnover 
D) liquidity

Question 15

Since 1993, the number of savings and loan associations has ________.

Accepted Answer

A) held steady 
B) risen sharply 
C) risen slightly 
D) declined substantially 
A) held steady 
B) risen sharply 
C) risen slightly 
D) declined substantially

Question 16

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 17

Explain how the Lincoln Savings and Loan scandal is an application of the principal-agent problem.

Accepted Answer

The Lincoln Savings and Loan scandal is

Question 18

Credit unions are characterized by

Accepted Answer

A) mutual ownership. 
B) common bond membership. 
C) nonprofit, tax-exempt status. 
D) all of the above. 
E) none of the above. 
A) mutual ownership. 
B) common bond membership. 
C) nonprofit, tax-exempt status. 
D) all of the above. 
E) none of the above.

Question 19

In the early stages of the banking crisis in the 1980s, financial institutions were especially harmed by

Accepted Answer

A) declining interest rates from late 1979 until 1981. 
B) the severe recession in 1981-82. 
C) the disinflation from mid-1980 to early 1983. 
D) all of the above. 
A) declining interest rates from late 1979 until 1981. 
B) the severe recession in 1981-82. 
C) the disinflation from mid-1980 to early 1983. 
D) all of the above.

Question 20

The political economy of the S&L crisis shows that the principal-agent problem occurs in politics. In this instance, the agent-regulators did not act to protect the principal-taxpayers because

Accepted Answer

A) regulators wanted to escape blame, hoping the situation would improve before others discovered the problem. 
B) regulators responded to pressure to pursue regulatory forbearance from politicians who had accepted campaign donations from owners of S&Ls. 
C) Congress was unwilling to allocate the necessary funds regulators needed to close insolvent S&Ls. 
D) all of the above. 
E) only A and B of the above. 
A) regulators wanted to escape blame, hoping the situation would improve before others discovered the problem. 
B) regulators responded to pressure to pursue regulatory forbearance from politicians who had accepted campaign donations from owners of S&Ls. 
C) Congress was unwilling to allocate the necessary funds regulators needed to close insolvent S&Ls. 
D) all of the above. 
E) only A and B of the above.

Exam 25: Savings Associations and Credit Unions

The Competitive Equality in Banking Act of 1987

Savings banks

An analysis of the political economy of the savings and loan crisis helps one to understand

Most credit unions today have federal charters.

Which of the following statements about mutual savings banks are true?

Mutual savings banks are concentrated in the ________ United States.

Which of the following are reasons that explain why regulators pursued a policy of regulatory forbearance toward thrifts in the early 1980s?

The smallest average-sized depository institution is ________.

The second major liability of savings and loans is borrowings.

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

That several hundred S&Ls were not even examined once in the period January 1984 through June 1986 can be explained by

Federal legislation allows credit unions representing groups with different common bonds to merge into a single credit union.

Examiners from the Federal Home Loan Bank Board of San Francisco recommended that Lincoln Savings and Loan be seized when they discovered that

The capital of financial institutions is often measured by the ________ ratio.

Since 1993, the number of savings and loan associations has ________.

The main source of funds at savings and loan associations is

Explain how the Lincoln Savings and Loan scandal is an application of the principal-agent problem.

Credit unions are characterized by

In the early stages of the banking crisis in the 1980s, financial institutions were especially harmed by

The political economy of the S&L crisis shows that the principal-agent problem occurs in politics. In this instance, the agent-regulators did not act to protect the principal-taxpayers because

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

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