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Subject:EconomicsPrice: Bought3
44. The dramatic growth of the First National Bank of Keystone was begun by:
a. heavy involvement in foreign currency exchanges.
b. participations in oil and gas exploration loans.
c. securitization of federally insured home improvement loans.
d. pioneering credit default swaps for bonds issued by medical facilities.
e. All of the above.
45. Which of the following is an accurate representation of the Keystone case?
a. The bank's president had an all-female workforce nicknamed "Knoxy Gals."
b. Auditors have concluded the bank was insolvent three years before it was shut down.
c. Top officials at the bank embezzled an estimated $250 million.
d. All of the above.
e. Only B and C of the above.
46. As McKenna relates about the failure of Continental Illinois:
a. the bank run began with a withdrawal of $1 billion from Asian depositors.
b. that upper management at CI were deaf to problems at the bank.
c. that a leading figure in the Enron scandal years later worked for Continental Illinois.
d. All of the above.
e. Only A and B of the above.
47. Rationales for bank regulation include:
a. discouraging depository institution liquidity.
b. assuring bank solvency by limiting failures.
c. providing assistance to make it easier to get a state charter.
d. All of the above.
e. None of the above.
48. During the Great Depression, federal regulation of banking included:
a. mandatory deposit insurance.
b. the separation of commercial and investment banking activities.
c. branching restrictions.
d. interest rate ceilings.
e. All of the above.
49. The Glass-Steagall Act of 1933 had far-reaching effects on the depository institution industry including:
a. strengthening interstate branching restrictions.
b. establishing the first federal deposit insurance fund.
c. prohibiting the payment of interest on demand deposits at commercial banks.
d. All of the above.
e. Only A and B of the above.
50. The first of the monetary deregulatory/reform acts of the 1980s was:
a. Garn-St. Germain.
b. Glass-Steagall.
c. FIRREA.
d. DIDMCA.
e. Gramm-Leach-Bliley.
51. The last of the monetary deregulatory/reform acts that began in 1980 was:
a. Garn-St. Germain.
b. Glass-Steagall.
c. FIRREA.
d. DIDMCA.
e. Gramm-Leach-Bliley.
52. All of the following were key provisions of the Glass-Steagall Act of 1933 except for:
a. the creation of the Federal Deposit Insurance Corporation.
b. the creation of Federal Reserve notes.
c. the prohibition of interest earnings on checking deposits.
d. the separation of commercial and investment banking.
e. the establishment of interest rate ceilings on savings deposits.
53. The Federal Deposit Insurance Corporation was created under the:
a. National Banking Act of 1863.
b. Depository Institutions Deregulation and Monetary Control Act of 1980.
c. Federal Depository Insurance Corporation Improvement Act of 1991.
d. Glass-Steagall Act of 1933.
e. None of the above.
54. Deposit insurance was initially introduced in response to:
a. the demise of the First Bank of the United States in 1811.
b. the demise of the Second Bank of the United States in 1836.
c. the widespread collapse of banks in the early 1930s.
d. the savings-and-loan crisis of the 1980s.
e. None of the above.
55. What is the name of the condition in which depositors withdraw their savings from banks and use them to purchase financial instruments directly?
a. Disintermediation.
b. Securitization.
c. Arbitrage.
d. Hedging.
e. Adverse selection.
56. Which of the following is not a rationale for the regulation of depository institutions?
a. To maintain depository institution liquidity.
b. To maintain the solvency of depository institutions.
c. To maintain high profitability of depository institutions.
d. To promote a sound banking market for consumers.
e. To prevent, or lessen, bank panics.
57. The FDIC is intended to alleviate asymmetric information problems between:
a. banks and the public.
b. regulators and banks.
c. politicians and regulators.
d. the public and politicians.
e. big banks and small banks.
58. Which of the following reduces the incentive for consumers to monitor the health and well-being of banks?
a. Online banking.
b. Swaps.
c. The FDIC.
d. All of the above.
e. None of the above.
59. Which of the following changes were made to the banking industry in the 1980s?
a. Interest rate ceilings were abolished.
b. The Resolution Trust Corporation was created to liquidate failed savings & loans.
c. The FDIC was created to protect depositor's funds.
d. All of the above.
e. Only A and B of the above.
60. The idea that government officials work in the interest of the public is called the:
a. public choice model.
b. public good model.
c. public interest model.
d. public policy model.
e. public partnership model.
61. The idea that regulators are captured by the industry that they regulate is associated with:
a. Adam Smith.
b. George Stigler.
c. Milton Friedman.
d. John Maynard Keynes.
e. Friedrich Hayek.
62. According to the authors of the text, which of the following is true about deposit insurance?
a. It is essentially cost-free.
b. It has been successful at reducing asymmetric information problems.
c. It was first part of our financial system in the late 1700s.
d. All of the above.
e. None of the above.
63. Investment banking was separated from commercial banking as a result of legislation passed in Congress in the:
a. 1860s.
b. 1910s.
c. 1930s.
d. 1970s.
e. 1990s.
64. In an attempt to prevent the collapse of Savings & Loans, the government passed many laws that were designed to help them by:
a. removing interest rate ceilings from what they pay their depositors.
b. allowing them to devote increasing amounts of their assets to consumer loans.
c. giving them the authority to issue junk bonds.
d. All of the above.
e. Only A and B of the above.
65. The problems of moral hazard created by the failure of Continental Illinois stemmed from:
a. its huge holdings of derivatives.
b. it being "too big to fail."
c. the large amount of off-balance-sheet activity.
d. its inability to meet the requirements of SOX.
e. All of the above.
66. Which of the following are among the lessons that we can reasonably draw from the collapse of Continental Illinois?
a. The aggressive pursuit of commercial loans was doomed to failure.
b. A high return on assets is not enough to offset a low return on equity.
c. The failure, and default, of any large borrower caused the bank's failure.
d. Massive aid from the Fed, the FDIC and other banks can save any large bank.
e. While their strategy was risky, there wasn't any single cause of their failure.
67. Continental Illinois had its roots in:
a. the Revolutionary War.
b. the War of 1812.
c. the Civil War.
d. World War I.
e. World War II.
68. Among the problems that Continental Illinois faced in the early 1980s was:
a. a rising return on equity (ROE).
b. a decrease in core deposits.
c. a decreased reliance on long-term certificates of deposit (CDs) for funding.
d. All of the above.
e. None of the above.
69. Which of the following is false about Continental Illinois?
a. It was a relatively small bank failure.
b. The bank was especially at risk from low interest-earning loans.
c. In the early 1980's they were the nation's largest lender of commercial loans.
d. They had a declining share of their liabilities come from "core" deposits.
e. They suffered huge losses when the Penn Square Bank failed.
70. The "too big to fail" policy exacerbates the moral hazard problem of:
a. banks.
b. regulators.
c. politicians.
d. the public.
e. small banks, but generally not large banks.
