T F 38.

Recoveries on loans previously charged off are added to the Provision for Loan Losses
(PLL) account on a bank's income statement.
Answer: False
When recoveries occur, they reduce the need for the bank to maintain as large of an
allowance for loan losses. Therefore, recoveries are typically recorded as credits to the
allowance for loan losses account, which indirectly impacts the income statement by
reducing the expense associated with the provision for loan losses.

T F 39. Loan-loss reserves set aside to cover a particular loan or loans expected to be a problem
or present the bank with above-average risk are known as specific reserves.
Answer: True
Loan-loss reserves that are specifically set aside to cover a particular loan or loans that
are expected to be problematic or present above-average risk are indeed known as
specific reserves. Specific reserves are a subset of the overall allowance for loan losses
maintained by a bank. By creating specific reserves, banks aim to ensure that they have
sufficient funds available to cover potential losses on specific loans or loan portfolios.

T F 40. U.S. banks (especially those with $500 million or more in total assets) are required to file
financial statements audited by an independent public accountant with their principal
federal regulatory agency.
Answer: True
The requirement for banks to have their financial statements audited is part of the
regulatory framework that ensures the accuracy and reliability of financial reporting in
the banking industry. The principal federal regulatory agencies for banks in the United
States include the Office of the Comptroller of the Currency (OCC), the Federal Reserve,
and the Federal Deposit Insurance Corporation (FDIC).

T F 41. Off-balance-sheet items for a bank are fee generating transactions which are not recorded
on their balance sheet.
Answer: True
Off-balance-sheet items, for example: loan commitments, letters of credit, represent
financial activities and obligations that do not directly appear on a bank's balance sheet
but have the potential to impact the bank's financial position and risk profile. These items
are typically contingent liabilities or commitments that arise from various types of
transactions. For example: Loan commitments, Letters of credit.

T F 42. The experience method of accounting for future loan loss reserves allows a bank to
deduct from their income statement up to .6 percent of their eligible loans.
Answer: False
The experience method of accounting for loan loss reserves does not typically allow a
bank to deduct a specific percentage of their eligible loans from their income statement.
The process of determining loan loss reserves is more complex and involves assessing the
credit quality and inherent risk of the bank's loan portfolio.

T F 43. After the Tax Reform Act of 1986, large banks (>$500 million in assets) were required to
use the reserve method of accounting for future loan loss reserves.
Answer: False
The Tax Reform Act of 1986 primarily focused on tax-related changes, including
 modifications to corporate tax rates and tax deductions. It did not specifically address the
accounting treatment of loan loss reserves for banks.

T F 44. The number one source of revenue for a bank based on dollar volume is loan income.
Answer: True
Lending activities, including interest income earned on loans, typically represent a
primary source of revenue for banks. Banks earn income by providing loans to
individuals, businesses, and other entities. The interest charged on these loans generates
loan income for the bank. Loan income is derived from the interest rate spread—the
difference between the interest rate at which the bank lends money and the interest rate it
pays to depositors or borrow funds.
T F 45. In looking at comparative balance sheets, it can be seen that large banks rely more
heavily on nondeposit borrowings while small banks rely more heavily on deposits.
Answer: True
Large banks, due to their size and complexity, often have access to various funding
options beyond traditional deposits. They may issue debt securities, engage in repurchase
agreements, borrow from other financial institutions, or access capital markets to raise
funds. These nondeposit borrowings provide an additional source of funding for large
banks, allowing them to meet their liquidity needs and support lending activities. On the
other hand, small banks typically rely more on deposits as their primary source of
funding. Deposits represent funds that individuals, businesses, and other entities hold in
their bank accounts.

T F 46. The Pension Fund industry is now larger than the Mutual Fund industry.
Answer: False
While both the mutual fund industry and the pension fund industry are significant players
in the investment landscape, the mutual fund industry is generally larger in terms of
assets under management. Mutual funds are accessible to a broader range of investors,
including individual investors, whereas pension funds primarily serve the employees of
specific organizations.

T F 47. Off-balance-sheet items for banks have declined in recent years.

T F 48. Except for banks, Savings & Loans and Savings Banks hold the most deposits.
Answer: True
Banks, including commercial banks and savings banks, typically hold the most deposits
compared to other financial institutions, including Savings & Loans (S&Ls). Commercial
banks are often the largest holders of deposits due to their extensive branch networks,
diverse customer base, and comprehensive banking services.

T F 49. "Painting the tape" refers to the practice whereby banks understate their nonperforming
loans.
Answer: False
The term "painting the tape" originates from the stock market and refers to the illegal
practice of manipulating the price or volume of a security by entering false trades. It
involves creating artificial transactions to give a false impression of trading activity or to
 manipulate the market price of a security.

T F 50. Financial statements issued by banks and nonblank financial service firms are looking
increasingly similar today.
Answer: True
Over time, accounting standards and reporting requirements have been harmonized and
converged, resulting in greater consistency and comparability in financial reporting
across different types of financial institutions. Additionally, regulatory frameworks have
been developed to enhance transparency and standardize reporting requirements for
financial institutions. Regulatory bodies, such as the Securities and Exchange
Commission (SEC) in the United States, the Financial Conduct Authority (FCA) in the
United Kingdom, and other global regulators, have implemented rules and regulations
that promote consistency in financial reporting.