Question 1

In what sense had the structure of S&Ls become outmoded by the 1970s? In what sense were the S&Ls uniquely vulnerable to an increase in inflation?

Accepted Answer

The S&Ls were obliged by regulation to h

Question 2

The incident in which an S&L entrepreneur contributed about $1.3 million to the campaigns of five U.S. senators in return for their assistance in getting FHLBB Chairman Edwin Gray to deal lightly with the problems of Lincoln Savings and Loan is known as the

Accepted Answer

A) "Lincoln Log" scandal. 
B) "Keating Five" scandal. 
C) "Bonfire of the Vanities" scandal. 
D) "FSLIC" scandal. 
A) "Lincoln Log" scandal. 
B) "Keating Five" scandal. 
C) "Bonfire of the Vanities" scandal. 
D) "FSLIC" scandal.

Question 3

The prompt corrective action rule implemented by the FDICIA directed the FDIC to

Accepted Answer

A) shut down institutions when their net worth became negative. 
B) shut down institutions when their net worth is less than 2% of assets. 
C) encourage institutions to reform the management of their assets in lieu of shutting down. 
D) use its best judgment in responding to insolvent institutions. 
A) shut down institutions when their net worth became negative. 
B) shut down institutions when their net worth is less than 2% of assets. 
C) encourage institutions to reform the management of their assets in lieu of shutting down. 
D) use its best judgment in responding to insolvent institutions.

Question 4

Which of the following countries has not faced a banking crisis since 1990?

Accepted Answer

A) Canada 
B) China 
C) Japan 
D) France 
A) Canada 
B) China 
C) Japan 
D) France

Question 5

Which of the following statements concerning money market deposit accounts is NOT true?

Accepted Answer

A) They were not subject to Regulation Q ceilings. 
B) They are not covered by federal deposit insurance. 
C) They are not subject to reserve requirements. 
D) They generally pay higher interest rates than other bank deposits available to small depositors. 
A) They were not subject to Regulation Q ceilings. 
B) They are not covered by federal deposit insurance. 
C) They are not subject to reserve requirements. 
D) They generally pay higher interest rates than other bank deposits available to small depositors.

Question 6

Why, if the Federal Reserve was set up as a lender of last resort for the banking system, did it perform effectively after the stock market crash of 1929, but poorly during the banking panics that began in late 1930?

Accepted Answer

The Fed was handicapped in its ability t

Question 7

An important consequence of regulations that reduce competition among banks is

Accepted Answer

A) a sharp reduction in the number of banks. 
B) an incentive for unregulated financial institutions and markets to compete with banks. 
C) an increase in moral hazard in banks' behavior. 
D) lower interest rates on bank loans than would otherwise exist. 
A) a sharp reduction in the number of banks. 
B) an incentive for unregulated financial institutions and markets to compete with banks. 
C) an increase in moral hazard in banks' behavior. 
D) lower interest rates on bank loans than would otherwise exist.

Question 8

The Federal Deposit Insurance Corporation Improvement Act of 1991

Accepted Answer

A) eliminated the too-big-to-fail doctrine. 
B) introduced a system of coinsurance for deposit insurance. 
C) authorized risk-based deposit insurance premiums. 
D) abolished the FSLIC. 
A) eliminated the too-big-to-fail doctrine. 
B) introduced a system of coinsurance for deposit insurance. 
C) authorized risk-based deposit insurance premiums. 
D) abolished the FSLIC.

Question 9

Why does the Pension Benefit Guaranty Corporation insure defined benefit pension plans, but not defined contribution pension plans? Has the existence of PBGC increased or decreased moral hazard problems in the financial system?

Accepted Answer

The main purpose of PBGC is to provide i

Question 10

The lower the amount of deposits covered by insurance,

Accepted Answer

A) the greater the extent of moral hazard in the banking system. 
B) the greater is the incentive for depositors to monitor banks. 
C) the greater is the need for government regulation of banking. 
D) the likelier the managers of banks are to make risky investments. 
A) the greater the extent of moral hazard in the banking system. 
B) the greater is the incentive for depositors to monitor banks. 
C) the greater is the need for government regulation of banking. 
D) the likelier the managers of banks are to make risky investments.

Question 11

The development of money market mutual funds also aided large, well-established firms in raising funds by

Accepted Answer

A) lowering interest rates throughout the economy. 
B) expanding the market for Treasury bills. 
C) expanding the market for commercial paper. 
D) expanding the market for negotiable certificates of deposit. 
A) lowering interest rates throughout the economy. 
B) expanding the market for Treasury bills. 
C) expanding the market for commercial paper. 
D) expanding the market for negotiable certificates of deposit.

Question 12

What did the Congressional Budget Office estimate the cost of the S&L debacle to be in 1992 dollars?

Accepted Answer

A) $100 million 
B) $200 billion 
C) $1 trillion 
D) $3 trillion 
A) $100 million 
B) $200 billion 
C) $1 trillion 
D) $3 trillion

Question 13

What is the Fedwire used for?

Accepted Answer

A) Relaying important developments in financial markets to broker-dealers 
B) Relaying important business developments to Federal Reserve officials in Washington 
C) Clearing securities transactions 
D) Sending federal government funds to disaster areas 
A) Relaying important developments in financial markets to broker-dealers 
B) Relaying important business developments to Federal Reserve officials in Washington 
C) Clearing securities transactions 
D) Sending federal government funds to disaster areas

Question 14

During the 1980s banks lost loan business to

Accepted Answer

A) the corporate bond market. 
B) the commercial paper market. 
C) the savings-and-loan industry. 
D) the Eurodollar market. 
A) the corporate bond market. 
B) the commercial paper market. 
C) the savings-and-loan industry. 
D) the Eurodollar market.

Question 15

Anticompetitive restrictions on banks generally result in

Accepted Answer

A) an increase in innovation and competition. 
B) a stifling of innovation. 
C) the persistence of traditional ways of doing things. 
D) a passive attitude on the part of bank managers as they realize attempts to compete vigorously have been closed off. 
A) an increase in innovation and competition. 
B) a stifling of innovation. 
C) the persistence of traditional ways of doing things. 
D) a passive attitude on the part of bank managers as they realize attempts to compete vigorously have been closed off.

Question 16

In 1931 the Fed increased the interest rate it charged on loans to banks

Accepted Answer

A) to protect its gold reserves. 
B) to raise funds to meet its expenses. 
C) to spur residential construction. 
D) to offset the negative impact of the federal budget deficit on the economy. 
A) to protect its gold reserves. 
B) to raise funds to meet its expenses. 
C) to spur residential construction. 
D) to offset the negative impact of the federal budget deficit on the economy.

Question 17

The primary motive for financial innovation during the regulatory process is

Accepted Answer

A) profit. 
B) adherence to the new regulations. 
C) return to the way business was conducted prior to the new regulations. 
D) increase coordination with other financial institutions. 
A) profit. 
B) adherence to the new regulations. 
C) return to the way business was conducted prior to the new regulations. 
D) increase coordination with other financial institutions.

Question 18

The creation of a lender of last resort in the United States

Accepted Answer

A) occurred in response to banking panics. 
B) was mandated in the U.S. Constitution. 
C) occurred in response to the S&L crisis of the 1980s. 
D) has been recommended by the Treasury in its report of late 1992. 
A) occurred in response to banking panics. 
B) was mandated in the U.S. Constitution. 
C) occurred in response to the S&L crisis of the 1980s. 
D) has been recommended by the Treasury in its report of late 1992.

Question 19

The popularity of money market mutual funds during the 1970s is best explained by

Accepted Answer

A) the rapid economic growth of that decade. 
B) the repeal of the McFadden Act. 
C) the rise in market interest rates above Regulation Q ceilings. 
D) the rapid increase in federal debt outstanding. 
A) the rapid economic growth of that decade. 
B) the repeal of the McFadden Act. 
C) the rise in market interest rates above Regulation Q ceilings. 
D) the rapid increase in federal debt outstanding.

Question 20

As a result of the bank failures of the early 1930s

Accepted Answer

A) bank reserves as a fraction of deposits rose and total bank deposits fell. 
B) bank reserves as a fraction of deposits and total bank deposits both fell. 
C) bank reserves as a fraction of deposits and total bank deposits both rose. 
D) bank reserves as a fraction of deposits fell and total bank deposits rose. 
A) bank reserves as a fraction of deposits rose and total bank deposits fell. 
B) bank reserves as a fraction of deposits and total bank deposits both fell. 
C) bank reserves as a fraction of deposits and total bank deposits both rose. 
D) bank reserves as a fraction of deposits fell and total bank deposits rose.

Exam 15: Banking Regulation: Crisis and Response

In what sense had the structure of S&Ls become outmoded by the 1970s? In what sense were the S&Ls uniquely vulnerable to an increase in inflation?

The incident in which an S&L entrepreneur contributed about $1.3 million to the campaigns of five U.S. senators in return for their assistance in getting FHLBB Chairman Edwin Gray to deal lightly with the problems of Lincoln Savings and Loan is known as the

The prompt corrective action rule implemented by the FDICIA directed the FDIC to

Which of the following countries has not faced a banking crisis since 1990?

Which of the following statements concerning money market deposit accounts is NOT true?

Why, if the Federal Reserve was set up as a lender of last resort for the banking system, did it perform effectively after the stock market crash of 1929, but poorly during the banking panics that began in late 1930?

An important consequence of regulations that reduce competition among banks is

The Federal Deposit Insurance Corporation Improvement Act of 1991

Why does the Pension Benefit Guaranty Corporation insure defined benefit pension plans, but not defined contribution pension plans? Has the existence of PBGC increased or decreased moral hazard problems in the financial system?

The lower the amount of deposits covered by insurance,

The development of money market mutual funds also aided large, well-established firms in raising funds by

What did the Congressional Budget Office estimate the cost of the S&L debacle to be in 1992 dollars?

What is the Fedwire used for?

During the 1980s banks lost loan business to

Anticompetitive restrictions on banks generally result in

In 1931 the Fed increased the interest rate it charged on loans to banks

The primary motive for financial innovation during the regulatory process is

The creation of a lender of last resort in the United States

The popularity of money market mutual funds during the 1970s is best explained by

As a result of the bank failures of the early 1930s

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters