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About This QuizBanks have come under scrutiny with the tumultuous economy -- they do much more than just hold on to your money for you. Take the quiz and see if you know how banks really work.
Banks are critical to the U.S. economy because their primary function is to:
keep customers' money safe and stored in a vault
make money transactions more convenient for customers
put customers' money to use by lending it out to others
The primary function of banks is to put their account holders' money to use by lending it out to others to do things such as buy homes, start businesses and send kids to college. Banks create money in the economy by making loans.
In response to the banking crisis during the Great Depression, the United States government:
subsidized private insurance companies to take insurance on risky banks
established the U.S. Government's Federal Deposit Insurance Corporation (FDIC) to insure bank deposits
The U.S. Federal Government established the Federal Deposit Insurance Corporation (FDIC) to back deposits in case the bank failed.
did nothing and let the free market fix itself
How do banks make money?
charging borrowers a higher interest rate than they pay out to depositors
charging fees to those who use banking services
both of the above
Banks make money with fees they charge for services and from the interest they charge on loans. The interest they charge is higher than the interest they pay on depositors' accounts.
Who is primarily responsible for protecting the public from unsafe banking practices?
the agency that charters the bank
The agency that charters the bank is primarily responsible for protecting the public from unsafe banking practices. It conducts on-site examinations to make sure the bank's financial condition is good and that the bank is complying with banking laws.
the U.S. Congress
In deciding whether to issue a charter to a bank, an agency will asses the directors' and CEOs':
The credit histories and relevant business histories of the bank's directors and CEOs will greatly affect the acceptance or denial of the bank's charter.
Bank organizers are responsible for contributing what percentage of the capital requirements to start a bank?
10 to 15 percent
Bank organizers are typically responsible for 10 percent to 15 percent of start-up capital of a bank. The remainder is sold to shareholders.
50 to 55 percent
70 to 75 percent
The Federal Reserve Act requires banks to:
warn depositors when they are in danger of failing
banks to take on risky loans
keep a certain percentage of their money in reserve
The Federal Reserve Act requires banks to keep a certain percentage of their money in reserve. Despite this, if everyone came to withdraw their money from the bank at the same time, there wouldn't be enough.
Which of the following types of accounts is a kind of checking account that pays interest?
money market account
certificate of deposit
A NOW (negotiable order of withdrawal) account is like a checking account that pays interest. Money market accounts and certificates of deposit have more limitations on when you can withdraw money.
What is a holding company?
a company holding a little stock with not much actual power over a bank
a company holding a significant amount of stock who can control elections and other bank policy matters.
A bank holding company is a company that holds a significant amount of stock in a bank and has a certain amount of control over the bank.
a company that is left holding the bag for a failed bank
The FDIC typically insures depositors for up to:
Depositors are typically protected for up to $250,000 in FDIC-insured banks. The amount was increased fro $100,000 in 2008.
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