84. Verifying the minimum level of capital or equity that must be held to fund the operations of an FI is
part of the goal of
A. investor protection regulation.
B. safety and soundness regulation.
C. entryregulation.
D. credit allocation regulation.
E. consumer protection regulation.
85. The Community Reinvestment Act and the Home Mortgage Disclosure Act were both passed to
provide incentives to comply with
A. entry regulation.
B. creditallocation regulation.
C. consumer protection regulation.
D. safety and soundness regulation.
E. investor protection regulation.
86. Price and quantity restrictions in regulation are usually aimed at determining whether an FI is
meeting certain
A. consumer protection guidelines.
B. credit allocation guidelines.
C. investor protection guidelines.
D. safety and soundness guidelines.
E. entry regulation guidelines.
1-21
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McGraw-Hill Education.
87. The following are protective mechanisms that have been developed by regulators to promote the
safety and soundness of the banking system EXCEPT
A. encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure.
B. encouraging banks to limit lending to a single customer to no more than 10% of capital.
C. the provision of deposit insurance.
D. the periodic monitoring of banks.
E. encouraging banks to produce timely accounting statements and reports.
88. Safety and soundness regulations include all of the following layers of protection EXCEPT
A. the provision of guaranty funds.
B. requirements encouraging diversification of assets.
C. the creation of money for those FIs in financial trouble.
D. requiring minimum levels of capital.
E. monitoring and surveillance.
89. Which of the following groups of FIs have experienced the highest percentage growth in assets in
the U.S. financial services industry during the past sixty years?
A. Commercial banks.
B. Thrifts.
C. Life insurance companies.
D. Investment companies.
E. Finance companies.
1-22
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McGraw-Hill Education.
90. Which of the following repealed the 1933 Glass-Steagall barriers between commercial banking,
insurance, and investment banking?
A. Financial Institutions Reform Recovery and Enforcement Act (1989).
B. Financial Services Modernization Act (1999).
C. Competitive Equality in Banking Act (1987).
D. The Bank Holding Company Act (1956).
E. Garn-St. Germain Depository Institutions Act (1982).
91. A significant recent trend in the provision of financial services is that households increasingly
prefer denomination intermediation and information services provided by
A. mutual funds and money market mutual funds.
B. commercial banks.
C. insurance companies.
D. hedge funds.
E. investment banks.
92. Investment companies are successful in attracting business away from banks and insurance
companies primarily because they
A. guarantee higher rates of return on savers' funds.
B. remove interest rate risk for the saver.
C. have no liquidity risk.
D. give savers cheaper access to the direct securities markets.
E. offer lower loan rates.
1-23
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McGraw-Hill Education.
93. When a DI makes a shift from an \
model, the change is likely to result in
A. increased operating costs.
B. increased interest rate risk.
C. increased liquidity risk.
D. decreased monitoring costs.
E. decreased fee income.
94. As DIs made a shift from an \
model over the last decade,
A. banks became more financially stable.
B. it became easier to measure the riskiness of individual loans.
C. there was a dramatic increase in systematic risk of the financial system.
D. the Federal Reserve decreased the number of services that banks could provide.
E. it became more difficult for households to obtain credit.
95. All of the following are examples of participants in the shadow banking system EXCEPT
A. money market mutual funds (MMMFs).
B. structured investment vehicles (SIVs).
C. credit hedge funds.
D. limited-purpose finance companies.
E. credit unions.
1-24
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McGraw-Hill Education.
96. The housing bubble that began building in 2001 was primarily the result of
A. the availability of low-cost affordable homes.
B. low interest rates and increased liquidity provided by the Federal Reserve.
C. a change in income tax policy that favored home ownership.
D. increased demand for U.S. real estate by international investors.
E. lack of available residential rental property.
97. In what year did housing prices begin to deteriorate leading to a jump in defaults in the subprime
mortgage markets and the onset of the recent financial crisis?
A. 2001.
B. 2003.
C. 2006.
D. 2008.
E. 2010.
98. The recent financial crisis highlighted, in retrospect, how heavily households and businesses had
come to rely on FIs to act as specialists in
A. generating profits and lowering costs.
B. risk measurement and management.
C. investment advice and brokerage services.
D. time intermediation and denomination mediation.
E. derivative securities and interbank borrowing.
1-25
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McGraw-Hill Education.
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