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business
financial markets institutions

Questions and Answers of Financial Markets Institutions

LG 14-7. Define the major types of finance companies.
LG 14-8. Identify the major assets and liabilities held by finance companies.
LG 14-9. Examine the extent to which finance companies are regulated.
1. Why the savings institution industry prospered throughout most of the 20th century (until the late 1970s)?
2. Why the performance of savings institutions deteriorated in the 1970s and 1980s?
3. What was done to rescue the savings institution industry in the 1980s?
2. What were the reasons for the crisis of the savings institu- tions industry in the late 1970s and early 1980s? (LG 14-1)
3. What two major pieces of legislation were adopted in the early 1980s to ameliorate the thrift crisis? Explain. (LG 14-1)
21. What has been the fastest growing area of asset business for finance companies? (LG 14-8)
22. Why was the reported rate on motor vehicle loans histori- cally higher for a finance company than a commercial bank? Why did this change in 1997? (LG 14-8)
23. What advantages do finance companies have over banks in offering services to small-business customers? (LG 14-8)
24. Why are finance companies less regulated than commercial banks? (LG 14-9)
25. Why have finance companies begun to offer more mortgage and home equity loans? (LG 14-7)
26. What is a wholesale motor vehicle loan? (LG 14-8)
27. What signal does a low debt-to-assets ratio for a finance company send to the capital markets? (LG 14-8)
1. How has the number of savings institutions and the dollar value of assets held by savings institutions changed since 2010 as reported in Figure 14–3 ?Go to the FDIC Web site at www.fdic.gov .
2. Calculate the percent of total industry assets held by savings institutions with asset size under$100 million, between $100 million and $1 billion, between $1 billion and $10 billion, and over$10
LG 15-1. Describe the two types of insurance companies.
LG 15-2. Review the four basic lines of business performed by life insurance companies.
LG 15-4. Classify the major regulations governing life insurance companies.
LG 15-5. Analyze the major lines of business performed by property–casualty insurance companies.
LG 15-6. Identify the main asset and liability items on property–casualty insurance company balance sheets.
20. What are the major assets and liabilities held by finance companies? (LG 14-8)
19. How does the amount of equity as a percentage of assets compare for finance companies and commercial banks? What accounts for the difference? (LG 14-8)
4. What shortcomings in the Depository Institutions Deregu- lation and Monetary Control Act of 1980 (DIDMCA) and the Garn-St. Germain Depository Institutions Act of 1982 (GSGDIA) contributed to the
5. How did the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 and the FDIC Improve- ment Act of 1991 reverse some of the key features of earlier legislation? (LG 14-1)
6. What are the main assets and liabilities held by savings institutions? (LG 14-2)
LG 15-3. Identify the major assets and liabilities of life insurance companies.
8. What has happened to the value of savings institutions" charters in the period of time since October 1979? How did this shift contribute to the crisis in the savings institution industry? (LG 14-3)
9. What does it mean when a savings institution is a mutual organization? (LG 14-1)
10. What explanations can be provided for the recent decline in the size of the savings institution industry? (LG 14-4)
11. How has the savings institution industry performed over the last 20 years? (LG 14-4)
12. How do credit unions differ from savings institutions? (LG 14-1)
13. Why were credit unions less affected by the sharp increase in interest rates in the late 1970s and early 1980s than the savings institution industry? (LG 14-5)
14. What are the main assets and liabilities held by credit unions? (LG 14-6) 15. Who are the regulators of credit unions? (LG 14-5)
16. Why did commercial banks pursue legal action against the credit union industry in the late 1990s? What was the result of this legal action? (LG 14-5)
17. How has the credit union industry performed over the last 20 years? (LG 14-5)
18. What are the three types of finance companies and how do they differ from commercial banks? (LG 14-7)
LG 15-7. Recognize the main regulators of property–casualty insurance companies.
7. What regulatory agencies oversee deposit insurance services to savings institutions? (LG 14-3)
11. How the Riegle-Neal Act affected the geographic expansion opportunities of banks?
12. What events led Congress to pass the FDICIA?
13. What events brought about the demise of the FSLIC?
14. How the 2008–2009 financial crisis affected the FDIC deposit insurance fund solvency?
15. What the main purpose of the FDIC Reform Act of 2005 was?
16. Why regulators impose reserve requirements on depository institutions?
17. The difference between a bank’s leverage ratio and its risk-based capital ratio?
18. What actions regulators must take under prompt corrective action (PCA)?
19. What caused the Federal Reserve to introduce a tracking plan for commercial banks’off-balance-sheet activities?
20. What regulatory changes have encouraged the growth of U.S.offshore banking? What factors have deterred U.S. offshore banking?
21. The impact of the passage of the International Banking Act of 1978 on foreign bank activities in the United States?
22. What the five main features of the Foreign Bank Supervision Enforcement Act of 1991 are?
10. The difference between the interstate banking restrictions imposed under the 1956 Bank Holding Company Act and those passed under the 1970 amendments to the Bank Holding Company Act?
9. How the Financial Services Modernization Act of 1999 has opened the doors for the establishment of full-service financial institutions in the United States?
8. How the provisions of the National Bank Act of 1863 affected the participation of national banks in establishing nonbank subsidiaries?
LG 13-1. Identify the types of regulations that commercial banks are subject to.
LG 13-2. Review the major bank regulations that have been passed in the last 20 years.
LG 13-3. Examine how commercial banks’ reentry into the investment banking business has evolved.
LG 13-4. Describe how and why the scope of deposits insured by the FDIC has changed.
LG 13-5. Compare regulations on U.S. commercial banks with those of other countries.
LG 13-6. Understand why commercial banks are subject to reserve requirements.
LG 13-7. Assess the capital regulations that commercial banks must meet.
1. The six major types of regulation CBs face?
2. What the layers of protection provided by safety and soundness regulations are?Describe each.
3. What the difference is between inside and outside money?
4. Who the key regulators of commercial banks are?
5. The rationale for the passage of the Glass-Steagall Act in 1933?What permissible underwriting activities did it identify for commercial banks?
6. Why a 5 percent rather than a 50 percent maximum ceiling was originally imposed on the revenues earned from the eligible underwriting activities of a Section 20 subsidiary?
7. Why a bank that currently specializes in making consumer loans but makes no commercial loans qualifies as a nonbank bank?
1. Two depository institutions have composite CAMELS ratings of 1 or 2 and are ‘well capitalized.’ Thus, each institution falls into the FDIC Risk Category I deposit insurance assessment scheme.
2. Two depository institutions have composite CAMELS ratings of 1 or 2 and are “well capitalized.” Thus, each institution falls into the FDIC Risk Category I deposit insurance assessment scheme.
6. The following net transaction accounts have been documented by a bank for the computation of its reserve requirements(in millions). ( LG 13- 4)Tues- Wed- Thurs- Fri- Monday nesday day day day 11th
9. Third Bank has the following balance sheet (in millions), with the risk weights in parentheses. ( LG 13- 7 )Assets Liabilities and Equity Cash (0%) $ 20 Deposits $178 OECD interbank Subordinated
10. What is the contribution to the asset base of the following items under the Basel requirements? Under the U.S. capitalto-assets rule? ( LG 13- 7 )$10 million cash reserves.$50 million 91-day U.S.
11. What is the bank’s risk-adjusted asset base? ( LG 13- 7 )
12. What are the bank’s Tier I and total risk–based capital requirements? ( LG 13- 7 )
9. How is the leverage ratio for a bank defined? (LG 13-7)
10. What is the significance of prompt corrective action as spec- ified by the FDICIA legislation? (LG 13-7)
11. Identify and discuss the weaknesses of the leverage ratio as a measure of capital adequacy. (LG 13-7)
12. What is the Basel Agreement? (LG 13-7)
13. What is the major feature in the estimation of credit risk under the Basel capital requirements? (LG 13-7)
14. What is the total risk-based capital ratio? (LG 13-7)
16. What are the definitional differences between Tier I and Tier II capital? (LG 13-7)
17. What components are used in the calculation of credit risk- adjusted assets? (LG 13-7)
LG 15-8. Describe the major trends occurring in the global insurance market.
11. How is the net asset value (NAV) of a mutual fund deter- mined? What is meant by the term marked-to-market daily? (LG 17-4)
10. What are the three components of the return that an investor receives from a mutual fund? (LG 17-4)
12. What is the difference between open-end and closed-end mutual funds? Which type tends to be more specialized? (LG 17-4)
13. How might an individual's preference for a mutual fund's objective change over time? (LG 17-3)
20. What types of fees do hedge funds charge? (LG 17-7)
19. What are the different categories of hedge funds? (LG 17-7)
18. What is a hedge fund and how is it different from a mutual fund? (LG 17-7)
17. Discuss the improper trading abuses and improper assign- ment of fees for which mutual funds were prosecuted in the carly 2000s. (LG 17-5)
2. What the difference is between short-term and long-term mutual funds?
1. Where mutual funds rank in terms of asset size of all FI industries?
LG 17-7. Know what a hedge fund is.
LG 17-6. Examine trends in the dollar value of mutual funds outstanding globally.
LG 17-5. Identify the main regulators of mutual funds.
LG 17-4. Calculate the net asset value of and the return on a mutual fund investment.
LG 17-3. Understand what is contained in a mutual fund prospectus.

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