Topic 6: Thrifts & Finance Companies Flashcards

1
Q

A financial institution formed primarily to accept consumer deposits and make home mortgages

A

Thrifts

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2
Q

Are generally smaller, local institutions and don’t have the reach or resources of a large national bank

A

Thrifts

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3
Q

Formerly called as mutual savings bank or mutual savings association

A

Savings Banks

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4
Q

Why are savings banks mutual?

A

It’s because they are owned and controlled by the depositors

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5
Q

What is the core function of savings banks?

A

To promote savings among society’s poor

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6
Q

When was the first savings bank formed?

A

Hamburg, Germany in 1778

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7
Q

What did the first savings bank issued?

A

Annuities instead of offering deposit

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8
Q

What do some people believed the first savings bank was made?

A

1799 in Southeast England by Reverend Joseph Smith

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9
Q

What did Smith offered from his savings bank?

A

He offered a proposal to take deposits from his parishioners during summer and return the deposits plus one-third at Christmas

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10
Q

Which government authorized the creation of a savings bank? When was it?

A

Massachusetts Government in 1816

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11
Q

What is the promised rate of the banks to pay to the depositors?

A

1% return quarterly

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12
Q

What is the raised of the promised rate?

A

1.25% quarterly or 5% annually

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13
Q

Similar functions to savings bank but primarily focused on home financing

A

Savings and Loans Association

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14
Q

What association is where a group of people in the 19th century would pool their money for the purpose of building homes? Then the chosen family would repay the loan for 30 years for cost and interest?

A

Building and Loans Association

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15
Q

Designed to increase the amount of low-cost funds available to financial institutions for home mortgage loans, small business loans, agricultural loans and rural economic development loans

A

Federal Home Loan Banking System (1932)

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16
Q

What rule do thrifts follow?

A

3-6-3 rule (3% on deposits, lend money at 6%, and hit the golf course by 3pm)

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17
Q

The postwar crisis subjected commercial banks to ___________, which prohibits them to pay interest in demand deposits.

A

Regulation Q

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18
Q

Why do thrifts pay higher interest rates often?

A

Because there were no explicit regulations on interest rates and dividends

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19
Q

Why are thrifts viewed as special?

A

Because these institutions enhanced the availability of credit for housing” and thus “they should be given an advantage in the competition from consumer-type savings”

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20
Q

In 1962, how many basis points did commercial banks raise?

A

50 basis points

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21
Q

In 1962, how many basis points did savings and loans raise?

A

15 basis points

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22
Q

When and why did thrifts lose their special standing?

A

In 1966, thrifts lost their special standing because they were included in Regulation Q

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23
Q

Is a savings bank in Massachusetts, spearheaded by Honorable James Savage, with a goal of increasing savings among the poor and working class

A

Provident Institution for Savings

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24
Q
  • Phased out Regulation Q
  • Allowed credit unions and thrifts to offer NOW accounts (Negotiable Orders of Withdrawal)
  • Allowed thrifts to compete for deposits with money market mutual funds and more
A

Depository Institution Deregulation and Monetary Control Act of 1980 (DIDMCA)

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25
Q

In DIDMCA, thrifts could pay _____________________

A

market rates of interest

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26
Q

In DIDMCA, the main source of revenue was the _______ mortgages with fixed interest

A

30-year

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27
Q

Is named after its two main sponsors: Congressman Fernanrd St. Germain and Senator Jake Garn

A

Garn-St. Germain Depository Institution Act of 1982

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28
Q

Allowed Savings & Loans to make commercial, corporate, business,
or agricultural loans up to 10% of the institution’s assets after January 1, 1984

A

Garn-St. Germain Depository Institution Act of 1982

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29
Q

In the Garn-St. Germain Depository Institution Act, how much rate is now allowed for Savings and Loans?

A

from 20% to 30%

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30
Q

Financial institutions that are insolvent but are allowed by bank regulators to continue operating

A

Zombie Institutions

31
Q

Why are some institutions called “Zombie Institutions”?

A

Because they were dead from an accounting perspective but continued to lend as if they were still alive

32
Q

How did Zombie Institutions infected the healthy insntitutions?

A

They offered loans at low interest rates to well-qualified lenders and offered high interest rates to savers, forcing the healthy institutions to do the same

33
Q

Made by the Congress and signed by President George H.W in 1989

A

Financial Institutions Reform, Recovery and Enforcement (FIRREA)

34
Q

Abolished the Federal Home Loan Bank Board

A

FIRREA

35
Q

Creation of the Office of Thrift Supervision (OTS) in the Treasury Dept.

A

FIRREA

36
Q

A government agency made by the FIRREA operating from 1989 to 1996

A

Resolution Trust Corporation (RTC)

37
Q

Sold off the assets of failed institutions and using the proceeds from those sales to pay off depositors

A

Resolution Trust Corporation (RTC)

38
Q

Arranged mergers and bailouts for bankruptcy

A

Resolution Trust Corporation (RTC)

39
Q

Former CEO who destroyed Washington Mutual Bank

A

Kerry Killinger

40
Q

United States’ largest savings and loan association until its collapse in 2008

A

Washington Mutual, Inc.

41
Q

Like thrifts, both focus primarily on servicing households

A

Credit Unions

42
Q

Are nonprofit institutions

A

Credit Unions

43
Q

Owners are in a form of common bond

A

Credit Unions

44
Q

Created a credit society of merchants and working-class that would borrow money from each other with low-interest rates back in the mid-nineteenth century

A

Franz Herman Schulze-Delitzsch

45
Q

Created a credit society that is recognizable as it is today (free from subsidies from the wealthy)

A

Friedrich Wilhelm Raiffeisen

46
Q

First credit union over Atlantic (North America) was in Canada back in 1900s

A

The Caisse D’Épargne Desjardins

47
Q
  • organized the first credit union

- a journalist and political activist back then

A

Alphonse Desjardins

48
Q

Englishman who wrote the use of credit cooperatives to the rural poor

A

Henry William Wolf

49
Q

First operation of the Caisse D’Épargne Desjardins

A

January 23, 1901

50
Q

Allowed credit unions to be organized anywhere in the United States

A

Federal Credit Union Act of 1934

51
Q

a banking commissioner for the Commonwealth of Massachusetts and observed how employees created their small credit unions

A

Massachusetts Credit Union by Pierre Jay

52
Q
  • Owner of family inherited business

- Spent his life for the expansion of nonprofit financial cooperatives

A

Edward Filene

53
Q

When did the congress passed the legislation for credit unions to expand and include business lending

A

1998

54
Q

When did small business administrations expanded lending programs with credit unions?

A

2003

55
Q

When did National Credit Union Association (NCUA) allowed well-capitalized credit unions to make unsecured business loan

A

October 2003

56
Q

receive unfair subsidy by not paying corporate income taxes

A

Credit Union Controversies

57
Q

Financial Intermediaries that make loans to both individuals and businesses

A

Financial Intermediaries

58
Q

Sometimes described as “Nonbank banks”

A

Finance Companies

59
Q

They only make loans and generally do not take deposits

A

Finance Companies

60
Q
  • Created in the 19th century as retailers extended credit to individuals and families to purchase consumer goods
  • Provide loans to businesses as well as households
A

Finance Companies

61
Q
  • Finance companies that lend to individuals and families
  • Most often they lend to people who do not have access to traditional banking services because of a lack of credit, poor credit history, low income or uneven employment
A

Consumer Finance Companies

62
Q

Offer automobile loans most often through car dealers

A

Auto Loans

63
Q

A loan that uses real estate as collateral

A

Home Mortgages

64
Q

People who do not have access to traditional banking services such as credit cards turn to finance companies to borrow money to purchase things like furniture and home appliances

A

Consumer Durables

65
Q
  • Also known as “business credit institutions” because they lend money to business
  • This type of finance company have expanded their lending to businesses because there is less regulation over business lending than consumer lending
A

Business Finance Companies

66
Q

Retailers borrow from a finance company to pay their goods. The finance company maintains a lien on the goods until they are repaid. The retailer sells the goods and repays the finance company with interest

A

Floor Plan or Inventory Financing

67
Q
  • A long-term rental
  • Instead of buying assets such as trucks, heavy equipment, and machinery, a firm may find it advantageous to lease the equipment instead because smaller firms do not have cash available to purchase these expensive items
A

Leasing

68
Q
  • A firm uses their Accounts Receivable as collateral on a loan from a finance company
  • They can either borrow against their ARs or enter into a factoring agreement wherein they sell their ARs to the finance company at a discount
A

Accounts Receivable Financing

69
Q

In either case, the firm is turning a relatively illiquid asset, their accounts receivable, into a liquid asset

A

Accounts Receivable Financing

70
Q

Established to help finance purchases of the good sold by the parent company

A

Captive Sales Finance Companies

71
Q

Started out as finance companies, but they finance the purchase of cost of good made by other companies

A

Sales Finance Companies

72
Q

Some finance companies sit within a bank company

A

Bank Subsidiaries

73
Q

It has the ability to make its own decisions as to what types of value propositions it wants to provide its customers

A

Independent Finance Companies

74
Q

Use their funds to make consumer loans, business loans, and even real estate loans

A

Financing Finance Companies