Question 1

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 2

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

Accepted Answer

According to the National Credit Union Administration (NCUA), as of Q3 2021, the total assets of all credit unions in the U.S. amounted to $2.02 trillion. In contrast, the four largest U.S. banks (JP Morgan Chase, Bank of America, Wells Fargo, and Citigroup) each have individual assets larger than the entire credit union industry combined, with a total of $11.9 trillion in assets as of Q3 2021.

Question 3

The QTL test requires that thrifts

Accepted Answer

The QTL test requires thrifts to have at least 65% of their assets in mortgages or mortgage-related assets to ensure their safety and soundness.

Question 4

Which one of the following has the highest concentration of mortgage-related assets on the balance sheet?

Accepted Answer

Savings institutions, also known as savings and loan associations, traditionally have the highest concentration of mortgage-related assets on their balance sheets. This is because their primary business involves accepting savings deposits and making mortgage loans to consumers.

Question 5

The predominant liabilities for savings institutions are

Accepted Answer

Savings institutions primarily rely on small time and savings deposits as their liabilities, as well as borrowing from the Federal Home Loan Bank (FHLB). Choice A is incorrect because commercial deposits are not a primary liability for savings institutions. Choice B is incorrect because while wholesale money market notes could be a liability for some savings institutions, it is not a predominant liability. Choice D is incorrect because checking accounts and money market mutual funds are typically associated with commercial banks, not savings institutions.

Question 6

Prior to 1986, Regulation Q limited the interest rate that depository institutions could pay on deposits and allowed savings institutions to pay a slightly higher rate than banks.

Accepted Answer

This is true. Regulation Q was a federal banking regulation that limited the interest rates that depository institutions (such as banks and savings institutions) could pay on deposits. Prior to 1986, savings institutions were allowed to pay a slightly higher rate than banks.

Question 7

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

Accepted Answer

FHLB loans are a significant source of funding for savings institutions, second only to deposits.

Question 8

After 1989, savings institutions have primarily been regulated by

Accepted Answer

After the Savings and Loan crisis in the late 1980s, the Office of Thrift Supervision (OTS) was established as the primary regulator for savings institutions. The Federal Home Loan Bank Board was abolished, and the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) regulate banks and credit unions respectively.

Question 9

Credit unions are not taxed, 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

Credit unions are nonprofit financial institutions that are exempt from federal income tax, unlike banks. This allows them to pass on the benefits of tax savings to their members in the form of lower loan rates and higher deposit rates.

Question 10

Which of the following trends in the number and industry assets of savings institutions is/are correct?
I. The number of savings institutions has fallen over time.
II. The number of savings institutions has increased over time.
III. Total industry assets fell during the recession of the late 2000s.
IV. Total industry assets are falling over time.
V. Total industry assets are stable but the number of savings institutions has fallen.

Accepted Answer

I. The number of savings institutions has fallen over time.
III. Total industry assets fell during the recession of the late 2000s. 
These two trends are correct, as per the information given. The other options are not correct, as the information does not support them.

Question 11

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

Accepted Answer

This statement is true. According to data from the National Credit Union Association and the Federal Deposit Insurance Corporation, as of June 2020, there were 5,085 credit unions in the United States compared to 4,413 savings associations and 788 savings banks. However, the average asset size of credit unions is smaller than that of savings associations and savings banks.

Question 12

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

Accepted Answer

Regulatory forbearance was a policy in the 1980s that allowed economically insolvent savings institutions to stay open instead of being closed down.

Question 13

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

Accepted Answer

In a mutual organization, such as a credit union, the members who deposit money are also the owners of the institution. This means that they have a say in the decisions made by the institution and may even receive dividends if the organization is profitable.

Question 14

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 common employer was the traditional requirement for credit union membership, nowadays many credit unions allow membership based on common location of residence or workplace.

Question 15

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 16

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 typically provide loans for consumer goods, such as cars and electronics, which have shorter lifespan compared to loans provided by banks for businesses and real estate. Therefore, finance companies have shorter-term loans than banks.

Question 17

In 2010, the largest U.S. savings institution was

Accepted Answer

ING Bank was the largest U.S. savings institution in 2010.

Question 18

Savings institutions must have at least 65% of their assets in mortgage related areas in order to maintain their favorable tax status and obtain FHLB loans.

Accepted Answer

This requirement is known as the "qualified thrift lender test" and is mandated by the Internal Revenue Code.

Question 19

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 20

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, with over 70% of their funding coming from member deposits. This is higher than other depository institutions such as banks and thrifts.

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