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

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

A) Savings institutions
B) Commercial banks
C) Credit unions
D) Finance companies
E) Pension funds

A) Savings institutions

36) In 2019, _______________ had on average the greatest amount of equity as a percentage of assets and ______________ had the lowest.

A) savings institutions; credit unions
B) banks; credit unions
C) credit unions; finance companies
D) finance companies; credit unions
E) finance companies; banks

D) finance companies; credit unions

40) Finance companies enjoy several advantages over banks. These include all but which one of the following?

A) Finance companies can offer various types of products and services without regulatory interference.
B) Many finance companies have considerable knowledge and expertise about specific industries and products.
C) Finance companies can accept riskier customers than banks.
D) Finance companies generally have lower overhead than banks.
E) Finance companies have lower fund

E) Finance companies have lower funds costs than banks.

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

⊚ true ⊚ false

true

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

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true

8) 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.

⊚ true ⊚ false

true

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

⊚ true ⊚ false

true

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

⊚ true ⊚ false

true

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

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true

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

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true

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

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true

15) 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 products.

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true

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

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false

17) A 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.

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true

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

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false

19) Finance companies rely primarily on bank loans and commercial paper as sources of funding.

⊚ true ⊚ false

true

20) On average, finance companies have higher capital-to-total-asset ratios than commercial banks.

⊚ true ⊚ false

true

22) The QTL test requires that thrifts:

A) limit the amount of mortgage-related assets on the balance sheet to improve diversification.
B) invest in a minimum percentage of government-backed securities to protect their mortgage loans.
C) lend no more than 80 percent of the value of a home to a borrower to ensure mortgage safety.
D) keep 35 percent of their assets in safe liquid investments to ensure adequate deposit liquidity.
E) invest at least 65 percent of their assets in mortgages or mortgage-related assets.

E) invest at least 65 percent of their assets in mortgages or mortgage-related assets.

24) After 2011, savings institutions have primarily been regulated by the:

A) Federal Home Loan Bank Board.
B) Federal Deposit Insurance Corporation.
C) Office of Thrift Supervision.
D) National Credit Union Administration.
E) Office of the Comptroller of the Currency.

E) Office of the Comptroller of the Currency.

25) In 2019, the largest U.S. savings institution was:

A) USAA Federal Savings Bank.
B) Synchrony Bank.
C) Navy Federal.
D) Hudson City Bancorp.
E) Charles Schwab Bank.

E) Charles Schwab Bank.

26) The predominant liabilities for savings institutions are:

A) commercial deposits and FHLB borrowings.
B) wholesale money market notes and reserves at the Fed.
C) transaction accounts and small time and savings deposits.
D) checking accounts and money market mutual funds.

C) transaction accounts and small time and savings deposits.

27) Historically, most savings institutions were established as:

A) mutual organizations.
B) stockholder organizations.
C) partnerships.
D) charitable organizations.
E) banks.

A) mutual organizations.

28) Deposits at savings banks are backed by the _______________ and deposits at savings institutions are backed by the ______________.

A) BIF; BIF
B) BIF; SAIF
C) SAIF; BIF
D) SAIF; SAIF
E) DIF; DIF

E) DIF; DIF

29) _____________ are the most diversified of depository institutions and ______________ are on average the largest depository institutions.

A) Banks; savings institutions
B) Credit unions; commercial banks
C) Credit unions; credit unions
D) Commercial banks; commercial banks
E) Savings institutions; commercial banks

D) Commercial banks; commercial banks

30) Credit unions are: 1.I. mutual associations.
2.II. not open to the general public.
3.III. for profit institutions.


A) I only
B) II only
C) I and II only
D) I, II, and III
E) II and III only

C) I and II only

31) The U.S. Central Credit Union and the corporate credit union:

A) are the primary regulators of the credit union industry.
B) provide investment and liquidity services to corporate credit unions.
C) serve as the trade organization for the industry.
D) charter credit unions.
E) provide deposit insurance for credit unions.

B) provide investment and liquidity services to corporate credit unions.

32) Credit unions have several advantages over banks. These include the following: 1.I. Credit unions are not taxed.
2.II. Credit unions are better diversified than banks.
3.III. Credit unions can collectively pool funds.
4.IV. Due to regulations, credit unions have better economies of scale and scope than banks.
5.V. Because of their ties to employers, credit unions have better personnel expertise than banks.
A) I and II only
B) I and III only
C) III and IV only
D) III, IV, and V only
E) I, III, and V only

B) I and III only

33) As a percentage of total assets, credit unions invest _______________ in securities than savings institutions and ______________ in consumer loans than commercial banks.

A) more; more
B) less; less
C) more; less
D) less; more
E) less; about the same

A) more; more

34) SI profitability declined in the mid-2000s due to: 1.I. the yield curve becoming more positively sloped.
2.II. decreases in the NIM ratio.
3.III. increases in the NIM ratio.
4.IV. the yield curve becoming flatter and even inverted.


A) I and II only
B) II and III only
C) II and IV only
D) III and IV only
E) I and III only

C) II and IV only

35) Rank the following from greatest to smallest in terms of industry asset size in 2019. 1.I. Banks
2.II. Savings institutions
3.III. Credit unions
4.IV. Finance companies


A) IV, I, II, III
B) I, IV, III, II
C) I, II, IV, III
D) I, II, III, IV
E) II, IV, III, I

B) I, IV, III, II

37) Factoring is:

A) equipment leasing.
B) servicing mortgage factors.
C) purchasing corporate accounts receivables at a discount.
D) financing automobile purchases.
E) making installment loans to customers.

C) purchasing corporate accounts receivables at a discount.

38) Sales finance companies:

A) specialize in making loans to customers of a specific retailer or manufacturer.
B) specialize in making installments and other loans to whatever consumers are interested.
C) specialize in providing loans to businesses.
D) specialize in international factoring and forfeiting.
E) None of these options are correct.

A) specialize in making loans to customers of a specific retailer or manufacturer.

39) A finance company that makes loans to high-risk customers is called a:

A) subprime lender.
B) commercial bank.
C) factor.
D) warehouse lender.
E) credit lender.

A) subprime lender.

41) A captive finance company is one that:

A) is owned by a retailer or manufacturer.
B) is owned by a bank holding company.
C) is owned by its depositors.
D) lends only to high-risk individuals that cannot obtain loans elsewhere (i.e., captives).
E) is regulated at the federal level.

A) is owned by a retailer or manufacturer.

42) A loan agreement between Ford Motor Credit and a local Ford dealer is an example of:

A) floor plan financing.
B) a business equipment loan.
C) factoring of receivables.
D) a depreciation loan.
E) None of these options are correct.

A) floor plan financing.

43) Home equity loans are popular with finance companies. Which one of the following statements about home equity loans is not correct?

A) These loans allow customers to borrow on a line of credit secured with a second mortgage.
B) Interest payments on home equity loans are not tax deductible.
C) Bad debt expenses on home equity loans are lower than on many other types of finance company loans.
D) In 2007-2008 there was a sharp increase in defaults among home equity borrowers.

B) Interest payments on home equity loans are not tax deductible.

44) For the finance company industry as a whole, the largest single loan type is:

A) business loans.
B) consumer loans.
C) real estate loans.
D) high-risk consumer loans.
E) credit card loans.

B) consumer loans.

45) Aggregate finance company profitability was poor in the late 2000s primarily due to which segment of the finance company industry?

A) Business factoring
B) Equipment loans
C) Equipment leasing
D) Securitization of auto loans
E) Subprime lending

E) Subprime lending

46) Which one of the following utilizes the least amount of deposits as a source of funds?

A) Banks
B) Credit unions
C) Finance companies
D) Savings associations
E) Savings banks

C) Finance companies

47) Finance companies obtain a significant portion of their short-term financing from:

A) time and savings deposits.
B) transaction accounts.
C) long-term bonds.
D) issuing commercial paper.
E) equity.

D) issuing commercial paper.

48) Which one of the following institutions is the least regulated?

A) Banks
B) Credit unions
C) Finance companies
D) Savings associations
E) Savings banks

C) Finance companies

49) In 2019, the biggest type of loans issued by credit unions was ________.

A) mortgages
B) business loans
C) consumer loans
D) home equity loans
E) government loans

A) mortgages

50) In 2019, ______ percent of the investment portfolio of credit unions had maturities of 1-3 years.

A) 30.3
B) 33.2
C) 34.9
D) 38.9
E) 42.3

C) 34.9