CHAPTER 3:

1. In banking, organizational form follows __________ because banks usually are organized in such a way as
to carry out the tasks and supply the services demanded of them. The term that correctly fills in the blank in
the sentence above is:
A) Bank size B) Management's decision C) Function D) Regulation E) Location
2. Which one of the following is charged with setting policy and overseeing a bank's performance?
A) Stockholders B) Board of directors C) Regulators D) Depositors E) None of the above.
3. The largest banks possess some potential advantages over small and medium-size banks, according to the
textbook. What specific advantage of the largest banks over small and medium-sized banks is not mentioned
in the text?
A) Greater diversification geographically and by product line
B) Availability of financial capital at lower cost
C) Greater professional expertise to allocate capital to the most promising products and services
D) Better positioned to take advantage of the opportunities afforded by interstate banking. E) All of the
above were mentioned in the text as advantages typically possessed by the largest banks.
4. Before any financial services can be offered to anyone a bank in the United States must have a:
A) Certificate of deposit insurance B) Charter of incorporation C) List of established customers
D) New building constructed to be the bank's permanent home E) None of the above.
5. In the United States there are close to __________ commercial banks in operation. Which number shown
below is closest to the actual total number of U.S. banks operating in the U.S.?
A) 20,500 B) 13,500 C) 11,500 D) 9,000 E) 7,500
6. One of the few states that has opted out of interstate banking is:
A) New York B) Ohio C) Texas D) Montana E) None of the above
7. The concentration of U.S. bank deposits in the hands of the largest banks has ______ during the most
recent period,
A) Declined B) Increased C) Remained essentially unchanged
D) Exhibited large fluctuations in both directions E) None of above
8. Bank holding company organizations have several advantages over other types of banking organizations.
Among the advantages mentioned in this chapter is:
A) Greater ease of access to capital markets B) Tax advantage C) Product-line
diversification
D) All of the above. E) None of the above.
9. A company which owns the stock of three different banks is known as a(n):
A) Unit Bank B) Interstate Bank C) One Bank Holding Company
D) Multi Bank Holding Company E) None of the above
10. Which of the following is considered an advantage of branch banking?
A) Increased availability and convenience of services B) Decreased chance of failure
C) Reduced transaction costs D) B and C above E) All of the above
11. The types of nonbank businesses a bank holding company can own include which of the following?
A) Retail Computer Store B) Security Brokerage Firm C) Retail Grocery Store
D) Wholesale Electronic Distribution Company E) All of the above
12. A bank which offers its full range of services from only one office is known as a:
A) Unit Bank B) Branch Bank C) Correspondent Bank D) Bank Holding Company E) None of the
above
13. Why did so many states and the federal government finally enact interstate banking laws?
A) The need for new capital in order to revive struggling economies
B) The expansion of services by nonbank financial institutions
C) Competition from neighboring states that already liberalized their laws
D) Advances in technology which allowed banks to service customers in broader geographic areas
E) All of the above are reasons for the passage of interstate banking laws
14. What is a bank holding company?
A) It is a bank that offers all of its services out of one office
B) It is a bank that offers all its services out of several offices
C) It is a corporation formed to hold the stock of one or more banks
D) It is a merchant bank E) None of the above
15. Which of the following is a type of service a bank holding company is not allowed to own?
A) Merchant banking company B) Savings and loan association C) Retail electronics equipment sales
company
D) Security brokerage firm E) Insurance agency
16. In the last decade, the number of banks has __________ and the number of branches has _________.
A) Declined; Increased B) Grown; Increased C) Grown; Decreased D) Declined; Decreased E) Stabilized;
Stabilized
17. Websites known as electronic branches offer all of the following except:
A) Internet banking services B) ATMs C) Point of sales
terminals
D) Computer and phone services connecting customers E) Traveler's checks
18. Relative to manufacturing firms, banks tend to have a (the) ___________ number of board members.
A) Same B) Larger C) Smaller D) Unknown E) None of the above
19. The percentage of unit banks in the U.S. today is approximately:
A) 10% B) 30% C) 50% D) 75% E) 100%
20. The ‘typical’ community bank has:
A) $300 million in assets and is located in a smaller city in the Midwest.
B) $25 billion in assets and is located in a large city in the East
C) $100 million in assets and is located in a large city the South
D) $10 billion in assets and is located in a small city in the West
E) None of the above
21. The ‘typical’ money center bank has:
A) $250 million in assets and is located in a smaller city in the Midwest
B) $25 billion in assets and is located in a large city in the East
C) $100 million in assets and is located in a large city in the South
D) $10 billion in assets and is located in a small city in the West
E) None of the above Answer: B
22. The majority of banks today are:
A) Federally chartered B) Uninsured C) State Chartered D) National Banks E) All of the above
23. ‘Member’ banks are:
A) Members of the FDIC B) National Banks C) Unit Banks D) Members of the Federal Reserve E) All of the
above
24.____and _____banks tend to be larger and hold more of the public’s deposits.
A) National and Member B) State and Nonmember C) National and Uninsured D) State and Insured E) None of
the above
25. Which of the following is a reason for the rapid growth in branch banks?
A) Exodus of population from cities to suburban areas B) Bank convergence
C) Business failures D) Decreased costs of brick and mortar E) All of the above
26. Under the Bank Holding Company Act control of a bank is assumed to exist only if:
A) The bank holding company acquires 100% of the bank’s stock
B) The bank holding company acquires 50% or more of the bank’s stock
C) The bank holding company acquires 25% or more the bank’s stock
D) The bank holding company acquires three banks E) None of the above
27. When a bank holding company acquires a nonbank business it must be approved by:
A) The FDIC B) The Comptroller of the Currency C) The Federal Reserve
D) The President of the U.S. E) All of the above
28. Many financial experts believe that the customers most likely to be damaged by decreased competition
include:
A) Large corporations in large cities B) Households and business in smaller cities and towns
C) Households that earn more than a billion dollars a year D) Students away at college E) None of
the above
29. According to Levonian and Rose in order to achieve some reduction in earnings risk, interstate banks
must expand into at least:
A) 2 states B) 4 states C) 6 states D) 10 states E) 25 states
30. The major competitors of banks have:
A) Fewer but much larger service providers B) Fewer but smaller service providers
C) More but smaller service providers D) More but larger service providers E) None of the
above
31. Of the following countries in Europe, which has the largest number of banks?
A) Belgium B) France C) Germany D) Great Britain E) None of the
above
32. Which country’s banks were owned by the state until the 1990’s?
A) Belgium B) France C) Germany D) Italy E) None of the above