Question 1

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 2

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 3

Charles Keating

Accepted Answer

A) was allowed to acquire Lincoln Savings and Loan of Irvine, California, even though he had been accused of fraud by the SEC only four-and-a-half years earlier. 
B) fired Lincoln's conservative lending officers and internal auditors, even though he had promised regulators he would keep them. 
C) enlisted the help of five senators to delay the seizure of Lincoln's assets. 
D) did all of the above. 
A) was allowed to acquire Lincoln Savings and Loan of Irvine, California, even though he had been accused of fraud by the SEC only four-and-a-half years earlier. 
B) fired Lincoln's conservative lending officers and internal auditors, even though he had promised regulators he would keep them. 
C) enlisted the help of five senators to delay the seizure of Lincoln's assets. 
D) did all of the above.

Question 4

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 5

Which of the following is a lender of last resort for credit unions?

Accepted Answer

A) National Credit Union Administration 
B) U)S. Central Credit Union 
C) state central credit unions 
D) the Central Liquidity Facility 
A) National Credit Union Administration 
B) U)S. Central Credit Union 
C) state central credit unions 
D) the Central Liquidity Facility

Question 6

Credit unions are owned by stockholders.

Accepted Answer

A) True 
 B)False

Question 7

"Bureaucratic gambling" refers to

Accepted Answer

A) the belief of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of the regulators. 
B) the risk that thrift regulators took in publicizing the plight of the S&L industry in the early 1980s. 
C) the strategy adopted by thrift regulators of lowering capital requirements and pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L industry would improve. 
D) none of the above. 
A) the belief of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of the regulators. 
B) the risk that thrift regulators took in publicizing the plight of the S&L industry in the early 1980s. 
C) the strategy adopted by thrift regulators of lowering capital requirements and pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L industry would improve. 
D) none of the above.

Question 8

The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.

Accepted Answer

A) regulatory forbearance; moral hazard 
B) regulatory forbearance; adverse selection 
C) regulatory stringency; moral hazard 
D) regulatory stringency; adverse selection 
A) regulatory forbearance; moral hazard 
B) regulatory forbearance; adverse selection 
C) regulatory stringency; moral hazard 
D) regulatory stringency; adverse selection

Question 9

Since the early 1990s, the net income of savings and loan associations has ________.

Accepted Answer

A) risen 
B) fallen slightly 
C) fallen sharply 
D) held steady 
A) risen 
B) fallen slightly 
C) fallen sharply 
D) held steady

Question 10

In the 1980s, regulators engaged in bureaucratic gambling when they allowed insolvent S&Ls to continue operating.

Accepted Answer

A) True 
 B)False

Question 11

Regulatory forbearance reduces moral hazard because an operating but insolvent S&L will take fewer risks than healthy S&Ls that can take risks and still remain solvent.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging the closing of insolvent thrifts. 
B) why thrift regulators were quick to inform Congress of the problems that 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. 
A) why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging the closing of insolvent thrifts. 
B) why thrift regulators were quick to inform Congress of the problems that 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.

Question 13

Since the early 1990s, the number of savings and loan associations has ________ and the average size (in assets)has ________.

Accepted Answer

A) risen; declined 
B) declined; risen 
C) risen; risen 
D) declined; declined 
A) risen; declined 
B) declined; risen 
C) risen; risen 
D) declined; declined

Question 14

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 15

The common bond membership requirement makes it difficult for ________ to diversify their loans.

Accepted Answer

A) savings and loan associations 
B) credit unions 
C) banks 
D) mutual savings banks 
A) savings and loan associations 
B) credit unions 
C) banks 
D) mutual savings banks

Question 16

________ view credit unions as unfair competitors due to government support they receive in the form of tax advantages.

Accepted Answer

A) Regulators 
B) The Federal Reserve 
C) Commercial banks 
D) none of the above 
A) Regulators 
B) The Federal Reserve 
C) Commercial banks 
D) none of the above

Question 17

In the 1980s, thrift institutions, which had been almost entirely restricted to making loans for home mortgages only, were allowed by regulators to

Accepted Answer

A) finance acquisitions in commercial real estate. 
B) extend consumer loans. 
C) purchase junk bonds. 
D) do all of the above. 
E) do only A and B of the above. 
A) finance acquisitions in commercial real estate. 
B) extend consumer loans. 
C) purchase junk bonds. 
D) do all of the above. 
E) do only A and B of the above.

Question 18

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

Accepted Answer

A) regulators initially attempted to downplay the seriousness of problems within the thrift industry. 
B) politicians who received generous campaign contributions from the savings and loan industry hoped that the problems in the industry would ease over time. 
C) Congress did not wait long enough for many of the problems in the thrift industry to correct themselves. 
D) of all of the above. 
E) of only A and B of the above. 
A) regulators initially attempted to downplay the seriousness of problems within the thrift industry. 
B) politicians who received generous campaign contributions from the savings and loan industry hoped that the problems in the industry would ease over time. 
C) Congress did not wait long enough for many of the problems in the thrift industry to correct themselves. 
D) of all of the above. 
E) of only A and B of the above.

Question 19

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 20

Since 1990, the number of credit union members has ________.

Accepted Answer

A) increased substantially 
B) increased slightly 
C) decreased substantially 
D) decreased slightly 
A) increased substantially 
B) increased slightly 
C) decreased substantially 
D) decreased slightly

Exam 25: Savings Associations and Credit Unions

The purpose of reserve requirements

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

Charles Keating

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.

Which of the following is a lender of last resort for credit unions?

Credit unions are owned by stockholders.

"Bureaucratic gambling" refers to

The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.

Since the early 1990s, the net income of savings and loan associations has ________.

In the 1980s, regulators engaged in bureaucratic gambling when they allowed insolvent S&Ls to continue operating.

Regulatory forbearance reduces moral hazard because an operating but insolvent S&L will take fewer risks than healthy S&Ls that can take risks and still remain solvent.

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

Since the early 1990s, the number of savings and loan associations has ________ and the average size (in assets)has ________.

Mutual savings banks

The common bond membership requirement makes it difficult for ________ to diversify their loans.

________ view credit unions as unfair competitors due to government support they receive in the form of tax advantages.

In the 1980s, thrift institutions, which had been almost entirely restricted to making loans for home mortgages only, were allowed by regulators to

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

Credit unions' main source of funds is ________.

Since 1990, the number of credit union members has ________.

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

The policy of exacerbated problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.

Since the early 1990s, the number of savings and loan associations has and the average size (in assets)has .