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Chapter 2

The Impact of Government Policy and Regulation on the Financial-Services Industry

Fill in the Blank Questions

1. The _____________________ was created as part of the Glass Steagall Act. In the beginning it

insured deposits up to $2,500. Answer: FDIC

2. The________________________ is the law that states that a bank must get approved from their

regulatory body in order to combine with another bank. Answer: Bank Merger Act

3. One tool that the Federal Reserve uses to control the money supply is _________________ . The Federal Reserve will buy and sell T-bills when they are using this tool of monetary policy. Answer: open market operations

4. The__________________________ was created in 1913 in response to a series of economic

depressions and failures. Its principal role is to serve as the lender of last resort and to stabilize the financial markets.

Answer: Federal Reserve

5. The __________________________ prevented banks from crossing state lines and made national

banks subject to the branching laws of their state. This act was later repealed by the Riegle Neal Interstate Banking law.

Answer: McFadden-Pepper Act

6. Because the FDIC levies fixed insurance premiums regardless of risk, this leads to a problem called

the ____________________ among banks. The fixed premiums encourage all banks to accept greater risk.

Answer: moral hazard

7. In 1980, __________________________ was passed and lifted government ceilings on deposit

interest rates in favor of free market interest rates. Answer: DIDMCA

8. One tool that the Federal Reserve uses to control the money supply is _________________. The

Federal Reserve will change the interest rate they charge for short term loans when they are using this tool of monetary policy.

Answer: changing the discount rate

9. The first major federal banking law in the U.S. was the __________________________. This law

was passed during the Civil War and set up a system for chartering national banks and created the OCC.

Answer: National Banking Act

10. The_________________________ was passed during the Great Depression. It separated

investment and commercial banks and created the FDIC. Answer: Glass-Steagall Act

11. The__________________________ brought bank holding companies under the jurisdiction of the

Federal Reserve.

Answer: Bank Holding Company Act

12. The__________________________ allows bank holding companies to acquire banks anywhere in

the United States. However, no one bank can control more than 30 percent of the deposits in any one state or more than 10 percent of the deposits across the country. Answer: Riegle-Neal Interstate Banking Act

13. The allows banks to affiliate with insurance companies and securities firms either through a holding company or as a subsidiary.

Answer: Gramm-Leach-Bliley Act (Financial Services Modernization Act)

14. Customers of financial-service companies may _____________________ of having their private

information shared with a third party such as a telemarketer. However, in order to do this they must tell the financial-services company in writing that they do not want their personal information shared with outside parties. Answer: opt out

15. The federal bank regulatory agency which examines the most banks is the ______________.

Answer: FDIC

16. The _________________ requires financial service companies to report suspicious activity in

customer accounts to the Treasury Department. Answer: U.S. Patriot Act

17. The central bank of the new European Union is known as the _______________________.

Answer: European Central Bank or ECB

18. The _____________________ Act prohibits banks and other publicly owned firms from

publishing false or misleading financial performance information. Answer: Sarbanes-Oxley

19. One of the main roles of the Federal Reserve today is . They have three tools that they use today to carry out this role; open market operations, the discount rate and legal reserve requirements.

Answer: monetary policy

20. The is the center of authority and decision making within the Federal Reserve. It consists of seven members appointed by the president for terms not exceeding 14 years. Answer: Board of Governors

21. The main regulators of insurance companies are . Answer: state insurance commissions

22. Federal Credit Unions are regulated and examined by . Answer: the National Credit Union Administration.

23. The makes it easier for victims of identity theft to file fraud alerts and allows the public to apply for a free credit report once a year. Answer: Fair and Accurate Credit Transactions Act (FACT Act)

24. The makes it faster and less costly for banks to clear checks. It allows for banks to electronically send check images instead of shipping paper checks across the country.

Answer: Check 21 Act

25. The was created by the National Banking Act and is part of the Treasury Department. It is the primary regulator of National Banks. Answer: Office of the Comptroller of the Currency (OCC)

26. The _________________________ proposes various regulations applying to the financial markets

to combat the recent credit crisis. This “bail-out” bill granted the US Treasury the means to purchase troubled loans, allowed the FDIC to temporarily increase deposit insurance, and permitted the government to inject additional capital into the banking system. Answer: The Emergency Economic Stabilization Act of 2008

True/False Questions