422 Chapter 18 Bank Regulation Chapter 18 Bank Regulation 1 Which of the following statements is incorrect A Many banks have expanded across the country in recent years B Bank regulation is needed to protect customers who supply funds to the banking system C Bank regulators have attempted to manage the speed of integration between banks and other financial service firms D Regulators have shifted the risk assessment to the individual small depositors ANSWER D 2 The opening of a commercial bank in the United States 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 ANSWER D 3 Commercial banks that are not members of the Federal Reserve System borrow from the Fed and subject to the Fed s reserve requirements A may are B may are not C may not are not D may not are ANSWER A 4 National banks are regulated by and state banks are regulated by A the Comptroller of the Currency their state agency B the Comptroller of the Currency the Comptroller of the Currency C their state agency their state agency D their state agency the Comptroller of the Currency ANSWER A 5 All Fed member banks must hold A private insurance on deposits B FDIC insurance on deposits C both FDIC and private insurance on deposits D none of these ANSWER B 6 Commercial banks restricted to a maximum percentage of their capital to loan to a single customer and allowed to use borrowed or deposited funds to purchase common stock A are are 423 Chapter 18 Bank Regulation B are are not C are not are D are not are not ANSWER B 7 An off balance sheet commitment that provides the bank s guarantee on the financial obligations of a borrower to a specific party is a A standby letter of credit B federal funds agreement C repurchase agreement D discount window agreement ANSWER A 8 Regulation Q limited A consumer loan interest rates B off balance sheet commitments C interest rates on savings deposits D corporate loan interest rates ANSWER C 9 The Glass Steagall Act of 1933 prevented 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 ANSWER A 10 Which of the following is not a main deregulatory provision of Depository Institutions Deregulation and Monetary Control Act of 1980 A phase out of deposit rate ceilings B allowance of checkable deposits for all depository institutions C new lending flexibility of depository institutions D allowance of interstate banking for depository institutions in most states ANSWER D Chapter 18 Bank Regulation 424 11 The Depository Institutions Deregulation and Monetary Control Act of 1980 A allowed S Ls to offer the same conventional demand deposits that commercial banks offer B removed all restrictions on commercial loans by S Ls C removed all restrictions on consumer loans by S Ls D required the Fed to offer check clearing services to any depository institutions that desire them ANSWER D 12 The Garn St Germain Act of 1982 A permitted depository institutions to offer money market deposit accounts B prevented depository institutions from acquiring problem institutions across geographical boundaries C required the Fed to explicitly charge depository institutions for its services D allowed the Fed to provide check clearing to depository institutions at no charge ANSWER A 13 Which of the following is not a specific criterion the FDIC uses to monitor banks A capital adequacy B dollar value of fixed assets C asset quality D earnings E sensitivity to financial market conditions ANSWER B 14 The specified amount of deposits per person insured by the FDIC is today A 50 000 B 100 000 C 10 000 D 200 000 ANSWER B 15 Which of the following statements is incorrect A The Basel Accord based capital requirements on a bank s risk level B The Basel Accord forced banks with greater risk to maintain a higher level of capital C The goal of the Basel II Accord is to properly account for a bank s risk so that the bank s capital requirements are in line with its corresponding risk D The Basel II Accord will explicitly account for interest rate risk ANSWER D 16 The Basel Accord forces banks with greater risk to maintain A more deposits B more capital C less capital D none of these ANSWER B 425 Chapter 18 Bank Regulation 17 Which of the following statements is incorrect A The validity of a bank s estimated VAR is assessed with backtests in which the actual daily trading gains or losses are compared to the estimated VAR over a particular period B Some banks supplement the VAR estimate with stress tests C In general the VAR model does not lend itself to determine capital requirements D All of these statements are correct ANSWER C 18 Which of the following is an off balance sheet commitment A long term debt B additional paid in capital C notes payable D guarantees on interest rate swaps ANSWER D 19 The McFadden Act was applicable to banks A in states where no branching was allowed B only in limited branching states C only in statewide branching states D in all states regardless of their intrastate branching status ANSWER D 20 The McFadden Act restricted banks from A branching within a city B interstate branching C intrastate banking D none of these ANSWER B 21 The fee banks pay to the FDIC for deposit insurance is now A a fixed dollar amount for all banks B a fixed percentage of the bank s deposit level for all banks C a fixed percentage of the bank s loan volume for all banks D based on the risk of the bank ANSWER D Chapter 18 Bank Regulation 426 22 Bank A has a 10 percent capital ratio and uses a significant proportion of its assets to invest in very highly rated bonds Bank B has a 12 percent capital ratio and uses a significant proportion of its assets to invest in highly leveraged transactions How would Bank A be rated versus Bank B using the capital and asset quality criteria A Bank A is perceived as safer by both criteria B Bank B is perceived as safer by both criteria C Bank A is perceived as safer according to capital but more risky according to asset quality D Bank B is perceived as safer according to capital but more risky according to asset