Question 1

After deposits,the second largest source of funds at savings institutions is FHLB loans.

Accepted Answer

According to data from the Federal Reserve, as of December 2019, FHLB loans are indeed the second largest source of funds at savings institutions after deposits.

Question 2

Savings institution deposits and bank deposits are backed by two different insurance funds.

Accepted Answer

Both savings institution deposits and bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) in the United States, providing a single source of insurance for both types of deposits.

Question 3

Finance companies are regulated at the federal and state levels similar to commercial banks.

Accepted Answer

False

Question 4

The policy employed in the 1980s of not closing economically insolvent savings institutions was called regulatory forbearance.

Accepted Answer

Regulatory forbearance was a policy implemented in the 1980s that allowed insolvent savings institutions to continue operating instead of being closed down.

Question 5

Generally,consumer finance companies make loans to borrowers who have been refused loans at banks due to low income or poor credit.

Accepted Answer

This statement is generally true. Consumer finance companies often specialize in providing loans to individuals who have low income, poor credit, or other factors that make them unable to obtain traditional bank loans.

Question 6

Floor plan loan is a type of short-term loan to finance high priced inventory in which the purchased inventory is placed as collateral for the loan.

Accepted Answer

A floor plan loan is a financing option used by businesses to purchase high-priced inventory. The inventory being purchased is used as collateral for the loan, and the loan is typically short-term in nature. This type of loan is commonly used in industries such as automotive, RV, and boat sales.

Question 7

The largest U.S. banks are larger than the entire credit union industry.

Accepted Answer

According to data from the National Credit Union Administration (NCUA) and the Federal Reserve, as of March 2021, the top 5 largest U.S. banks had a combined asset size of over $8 trillion, while the entire credit union industry had assets of approximately $1.8 trillion. Therefore, the largest U.S. banks are indeed bigger than the entire credit union industry.

Question 8

Of all the depository institutions,as a percentage of assets,credit unions rely the most on deposit sources of funds.

Accepted Answer

Credit unions rely heavily on deposit sources of funds, as they are member-owned and operate as not-for-profit institutions. In contrast, commercial banks and savings institutions rely more on nondeposit sources of funds, such as borrowing from other institutions or issuing securities.

Question 9

The National Credit Union Administration is the primary regulator of federally chartered credit unions.

Accepted Answer

The National Credit Union Administration (NCUA) is indeed the primary regulator of federally chartered credit unions.

Question 10

Finance companies rely primarily on bank loans and commercial paper as source of funding.

Accepted Answer

Finance companies typically rely on bank loans and commercial paper as their main sources of funding, in addition to other sources like deposits and asset-backed securities.

Question 11

Sales finance institutions specialize in loan sales to banks and thrifts.

Accepted Answer

Sales finance institutions specialize in providing financing for the purchase of goods and services, often through loans or leases, rather than selling loans to banks and thrifts.

Question 12

In a mutual organization,the depositors are owners of the institution.

Accepted Answer

In a mutual organization, such as a credit union or mutual savings bank, the members or depositors are also the owners of the institution. They have a say in the governance of the organization and may be eligible to receive dividends or other benefits.

Question 13

Credit unions are not taxed and,as a result,well-run credit unions are often able to charge lower loan rates and pay slightly higher deposit rates than banks.

Accepted Answer

This statement is true. As nonprofit organizations, credit unions are exempt from federal and most state taxes, which allows them to pass the savings along to their members in the form of lower loan rates and higher deposit rates.

Question 14

Because of the differences in the makeup of their major loan types,finance companies typically have shorter-term loans than banks.

Accepted Answer

Finance companies usually offer shorter-term loans, such as personal and consumer loans, while banks offer a wider range of loans, including longer-term loans such as mortgages and business loans.

Question 15

Factoring is the term used when a finance company purchases accounts receivable from corporate customers at premium.

Accepted Answer

Factoring involves a finance company purchasing accounts receivable from corporate customers at a discount, not at a premium, to provide them with immediate cash.

Question 16

Savings institutions must have at least 65 percent of their assets in mortgage-related areas in order to maintain their thrift charter.

Accepted Answer

This statement is true. According to the Home Owners' Loan Act, savings institutions (also known as thrifts) must have at least 65 percent of their assets in mortgage-related areas in order to maintain their thrift charter.

Question 17

There are more credit unions than other types of thrifts,but credit unions are generally smaller than other types of thrifts.

Accepted Answer

According to the National Credit Union Administration (NCUA), as of June 2021, there were 5,131 credit unions and 613 federally insured thrifts (including savings banks and savings and loan associations). However, on average, credit unions tend to be smaller than other types of thrifts in terms of assets and membership.

Question 18

Traditionally,most credit union members had a common employer,but increasingly the required commonality is a common location of either residence or workplace.

Accepted Answer

This statement is true. While credit unions originally formed around a shared employer, many now allow membership based on shared residency or workplace location.

Question 19

Generally,a captive finance company is wholly owned by major manufacturing companies with the purpose of providing financing to customers purchasing the parent company's product.

Accepted Answer

A captive finance company is indeed wholly owned by a major manufacturing company and its primary function is to provide financing to customers of the parent company's products.

Question 20

On average,finance companies have higher capital-to-total-asset ratio than that of commercial.

Accepted Answer

Finance companies typically have higher capital-to-total-asset ratio as they are subject to more stringent regulations and requirements for capital adequacy. Commercial companies may have lower ratios as their business models rely more on leverage and rely on debt financing.

Quiz 14: Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies