1. Explain why the number of new chartered financial institutions will increase during the time period when the bankruptcy rate of existing institutions also increases.

2. Describe how a mutually owned financial institution is different from a publicly owned financial institutional company:

3. Explain how the issue of TBTF (too big to fail) from the 1980s eventually became the issue of the Systemic Institutions of the 21^st Century.

4. What is meant by the Adverse Selection Problem throughout the financial institutional industry:
   1. Customers who seek (apply for) insurance policies or loans or margin accounts are less likely to be the most in need of coverage (to claim);
   2. Customers are foolish with insurance policies, unnecessary loans, over-extension of credit, and therefore often choose expensive policies they do not need or take inappropriate risks;
   3. Financial institutions, like banks or Insurance companies, often invest in securities that are too safe to provide the income needed to meet their expected claims;
   4. Customers who seek (apply for) insurance policies are more likely to be the most in need of coverage (and therefore will claim), or loans are more likely the most in need of the funds without the ability or prospect to repay, or seek services that they are least able to afford but are encouraged to seek by unscrupulous salespeople.
5. From our discussion, explain how at least one financial service provided to the public (example: the sale of basic life insurance policies has fallen) has changed over the past 20 years, 30 or even 40 years.

Match each of the following with the appropriate explanation of the area of operation to be evaluated - place the letter next to the (numbered) term.

6. Capital Adequacy:
7. Asset Quality:
8. Management Effectiveness:
9. Earnings Performance:
10. Liquidity Sufficiency:
11. Sensitivity to Market Risk:
    1. Ability to cover losses with analysis of peer group comparisons, awareness of industry trends, and reliance on interest-sensitive assets and/or liabilities.
    2. Safe and sound operations displaying technical competence and strong compliance, as well as demonstrating experienced based internal policies for control.
    3. Measure the impact of changes in interest rates, exchange rates or commodity and derivative values on the operation.
    4. Determine the volatility of various categories of deposits, the frequency and level of various classifications of borrowing, the compliance to regulatory immediate cash flow needs, and the current position versus industry norms for meeting all immediate deman
    5. Level, distribution and severity of various risk categorized assets, adequacy of loan loss allowance, treatment of underperforming commitments, and quality or reliability of underwriting standards.
    6. Peer group and compliance driven and determined adequacy of Equity, both primary (tier 1) and secondary (tier 2), evaluation of both dividend policies and earnings retention, and planning for growth, adverse effects, and possibility of adverse performance.
12. Broadly classifying the Assets on the balance sheet of a financial institution, each of the following belongs EXCEPT:
    1. Cash & Balances Due c. Securities (Investments & Secondary Liquidity)
    2. Loans & Leases d. Deposit Accounts
13. Which of the following is the largest item for Primary Liquidity and which of the following is the largest item for secondary liquidity:
    1. Deposits at the FED; U S Treasuries c. Deposits at the FED; commercial loans
    2. Vault Cash; Consumer Loans d. U S Treasuries; Demand Deposits
14. Which of the following is an area of investment and lending in which all financial institutions have increased their involvement the most over the past 20 to 6o years as a percent of total:
    1. U.S Treasuries c. Mortgage Market
    2. Fixed assets d. Agriculture and Farming
15. TRUE or FALSE: Preferred Stock is considered secondary Equity.
16. TRUE or FALSE: Financial Institutions, in general, use higher leverage than manufacturers.
17. TRUE or FALSE: To understand the risk associated with Off-Balance Sheet Assets & Liabilities, one needs to read and analyze the financial statement footnotes carefully.
18. Explain why the Glass-Steagall 1933 Act was so important to Financial Institutions:

19. When was the Glass-Steagall 1933 Act repealed:
    1. 2009 b. 1999 c. 1979 d. 1949
20. Net Non-Interest Income (or margin) is expected to be:
    1. Unimportant to performance c. positive
    2. Negative d. an additional income generator
21. Explain the function of or use of the DuPont Method of Analysis:

22. Layers of regulations have been imposed on Financial Institutions over our 200+ year history to protect depositors and borrowers against the risk of failure, often referred to as:
    1. Safety and Soundness Regulation c. Investor Protection Regulation
    2. Foreign Investment Regulation d. Premium Generation Regulation
23. The difference between the Bid price and the Ask price on securities is referred to as:
    1. spread b. total loss c. dealer payment d. policy premium
24. We have a dual banking system (state chartered and nationally chartered) since from the very beginning of the nation, there were those that favored a strong central government and those that envisioned a rural, agrarian society with political power centered in the states; the former and the latter were known as:
    1. the Federalists & the Royalists c. the Federalist and the Democratic-Republicans
    2. the Futurists & the Staidists d. the Staters and the Democratic-Republicans
25. TRUE or FALSE: The Federal Reserve System is the first central bank formed within and by the United States.
26. The National Banking Act of 1863 did each of the following except:
    1. Allowed the federal government to charter banks,
    2. Enabled newly formed national banks to provide national bank notes,
    3. Required national banknotes to be uniform, safe and accepted at par value,
    4. Reduced taxes on state-issued-bank-notes to encourage their distribution.

Match the following law with one major provision associated with that law (place letter next to (numbered) Law.

27. McFadden Act 1927
28. Glass-Steagall Act - 1933
29. Bank Holding Company Act 1956
30. Amendments to BHCA - 1970
31. International Banking Act 1978
32. DIDMCA 1980
33. Garn-St.Germain 1982
34. Competitive Equality in Banking Act 1987
35. Financial Institutions Reform, Recovery, and Enforcement Act 1989
36. Federal Deposit Insurance Corporation Improvement Act - 1991
    1. Restricted branching among depository institutions, especially inter-state branching;
    2. Created the Federal Deposit Insurance Corporation (FDIC);
    3. Restricted the banking and non-banking acquisition activities of multibank holding companies;
    4. Extended regulations to one-bank holding companies and restricted activities to those closely related to banking;
    5. Regulated foreign bank branches and activities in the U.S.A.;
    6. Reduced regulation and introduced uniform reserve requirements for all;
    7. Allowed sound commercial banks to acquire failing savings institutions
    8. Recapitalized the Federal Savings and Loan Insurance Corporation (FSLIC);
    9. Combined the FSLIC and FDIC into the FDIC-SAIF.
    10. Introduced risk-based insurance premiums and limited the use of Too-Big-To-Fail bailouts.

In the discussion of the comparison of several financial institutional types, which of the following is TRUE or FALSE.

37. TRUE or FALSE: Commercial Banks primary assets are mortgage securities.
38. TRUE or FALSE: Consolidation has occurred in each of the Financial Institutional types.
39. TRUE or FALSE: Credit Unions are a type of Commercial Bank.
40. TRUE or FALSE: Credit Unions are heavily taxed.
41. TRUE or FALSE: Demutualization has been a trend among insurance companies.
42. TRUE or FALSE: Banks prefer to invest in loans whereas insurance companies prefer bonds.
43. TRUE or FALSE: Competition for Security & Investment Firms increased when the 1987 Act allowed Bank Holding Companies to expand their underwriting activities.
44. TRUE or FALSE: By size, Mutual Funds over 40 years have become one of the three largest types of financial institutions.
45. Which of the following is said to be a major benefit of a Finance Company over a Bank:
    1. fewer regulations c. larger deposit base
    2. less risky customers d. higher quality commercial loans.
46. Define Usury law:

47. Define Captive finance company:

48. What is a factor as defined within the Finance Company terminology:

49. Which of these financial institutions is the largest investor in the Stock market:
    1. Commercial Banks b. Finance Companies c. Pension Funds d. Insurance firms