Question 1

The regulatory response stage of the regulatory process consists of all of the following EXCEPT

Accepted Answer

A) regulators observe the impact of regulations on changes in the way financial institutions do business. 
B) government steps in to end the crisis. 
C) regulators adapt their policies in response to financial innovations that circumvent regulatory restrictions. 
D) regulators seek new authority in response to attempts to get around regulations. 
A) regulators observe the impact of regulations on changes in the way financial institutions do business. 
B) government steps in to end the crisis. 
C) regulators adapt their policies in response to financial innovations that circumvent regulatory restrictions. 
D) regulators seek new authority in response to attempts to get around regulations.

Question 2

Which of the following is NOT true of the Depository Institution Deregulation and Monetary Control Act of 1980?

Accepted Answer

A) Interest rate ceilings were placed on mortgage loans and certain types of commercial loans. 
B) All banks were given access to the Fed's check-clearing facilities. 
C) NOW accounts were permitted. 
D) Regulation Q was phased out. 
A) Interest rate ceilings were placed on mortgage loans and certain types of commercial loans. 
B) All banks were given access to the Fed's check-clearing facilities. 
C) NOW accounts were permitted. 
D) Regulation Q was phased out.

Question 3

The most important loss to the economy during the 1980s from the thrift crisis was

Accepted Answer

A) the loss of output represented by the $200 billion spent to pay off depositors of failed thrifts. 
B) the increase in funds spent to hire more regulators. 
C) the diversion of savings to less productive investments funded by insured deposits. 
D) the increase in deposit insurance premiums mandated by new legislation. 
A) the loss of output represented by the $200 billion spent to pay off depositors of failed thrifts. 
B) the increase in funds spent to hire more regulators. 
C) the diversion of savings to less productive investments funded by insured deposits. 
D) the increase in deposit insurance premiums mandated by new legislation.

Question 4

Which of the following did NOT occur as a result of the weakness of the Fed's actions during the banking crisis of the early 1930s?

Accepted Answer

A) Congress amended the Fed's charter to broaden the permissible collateral for discount loans. 
B) Congress amended the Fed's charter to limit the convertibility of dollars into gold. 
C) A federal system of deposit insurance was introduced. 
D) Congress amended the Fed's charter to require it to make discount loans to any banks requesting them. 
A) Congress amended the Fed's charter to broaden the permissible collateral for discount loans. 
B) Congress amended the Fed's charter to limit the convertibility of dollars into gold. 
C) A federal system of deposit insurance was introduced. 
D) Congress amended the Fed's charter to require it to make discount loans to any banks requesting them.

Question 5

Regulation Q

Accepted Answer

A) prohibited interstate banking. 
B) placed ceilings on allowable interest rates on time and savings deposits. 
C) required all banks to hold reserves against demand deposits. 
D) broadened the basis on which the Fed could make discount loans. 
A) prohibited interstate banking. 
B) placed ceilings on allowable interest rates on time and savings deposits. 
C) required all banks to hold reserves against demand deposits. 
D) broadened the basis on which the Fed could make discount loans.

Question 6

The key to the interest rate risk faced by thrifts was

Accepted Answer

A) their heavy investments in Treasury bills. 
B) the mismatch between the maturities of their assets and liabilities. 
C) their heavy investments in Treasury bonds. 
D) their investments in very risky projects. 
A) their heavy investments in Treasury bills. 
B) the mismatch between the maturities of their assets and liabilities. 
C) their heavy investments in Treasury bonds. 
D) their investments in very risky projects.

Question 7

Certificates of deposit differ from demand deposits in that they

Accepted Answer

A) do not pay interest. 
B) have penalties for early withdrawal. 
C) are sold only by S&Ls. 
D) pay non-taxable interest. 
A) do not pay interest. 
B) have penalties for early withdrawal. 
C) are sold only by S&Ls. 
D) pay non-taxable interest.

Question 8

The market for short-term credit exists in large part to

Accepted Answer

A) provide the federal government with a means of financing its budget deficit. 
B) provide banks with short-term investments. 
C) accommodate firms' demands for working capital. 
D) accommodate consumers' demand to own houses. 
A) provide the federal government with a means of financing its budget deficit. 
B) provide banks with short-term investments. 
C) accommodate firms' demands for working capital. 
D) accommodate consumers' demand to own houses.

Question 9

Which of the following statements is accurate?

Accepted Answer

A) Between the Great Depression and the mid-1970s in the United States, commercial banks prospered, but S&Ls did not. 
B) Between the Great Depression and the mid-1970s in the United States, S&Ls prospered, but commercial banks did not. 
C) Between the Great Depression and the mid-1970s in the United States, both commercial banks and S&Ls prospered. 
D) Between the Great Depression and the mid-1970s in the United States, neither commercial banks nor S&Ls prospered. 
A) Between the Great Depression and the mid-1970s in the United States, commercial banks prospered, but S&Ls did not. 
B) Between the Great Depression and the mid-1970s in the United States, S&Ls prospered, but commercial banks did not. 
C) Between the Great Depression and the mid-1970s in the United States, both commercial banks and S&Ls prospered. 
D) Between the Great Depression and the mid-1970s in the United States, neither commercial banks nor S&Ls prospered.

Question 10

Which of the following factors contributed to the problems that banks began to face during the 1960s and 1970s?

Accepted Answer

A) Very low interest rates 
B) Very low inflation rates 
C) Banking regulations enacted during the 1930s 
D) Prolonged periods of recession 
A) Very low interest rates 
B) Very low inflation rates 
C) Banking regulations enacted during the 1930s 
D) Prolonged periods of recession

Question 11

Under FDICIA, who would have to approve in order for the too-big-to-fail policy to be implemented?

Accepted Answer

A) The President of the United States 
B) A two-thirds majority in Congress 
C) Two-thirds of the FDIC's directors, the Fed's Board of Governors, and the Secretary of the Treasury 
D) The Federal Open Market Committee and the Comptroller of the Currency 
A) The President of the United States 
B) A two-thirds majority in Congress 
C) Two-thirds of the FDIC's directors, the Fed's Board of Governors, and the Secretary of the Treasury 
D) The Federal Open Market Committee and the Comptroller of the Currency

Question 12

In 1971 money market mutual funds were introduced as an alternative to

Accepted Answer

A) commercial paper. 
B) Treasury bills. 
C) repurchase agreements. 
D) bank deposits. 
A) commercial paper. 
B) Treasury bills. 
C) repurchase agreements. 
D) bank deposits.

Question 13

Government regulation of banks in the United States

Accepted Answer

A) changes slowly over time as knowledge of the best way to organize the system increases. 
B) generally increases during election campaigns as politicians exploit the public's hostility toward banks. 
C) changes abruptly in response to periodic financial crises. 
D) has remained essentially unchanged since the early twentieth century. 
A) changes slowly over time as knowledge of the best way to organize the system increases. 
B) generally increases during election campaigns as politicians exploit the public's hostility toward banks. 
C) changes abruptly in response to periodic financial crises. 
D) has remained essentially unchanged since the early twentieth century.

Question 14

The loss of business to the commercial paper market that banks have suffered has been particularly damaging because most of the lost business was from

Accepted Answer

A) foreign borrowers. 
B) low-quality borrowers. 
C) high-quality borrowers. 
D) local municipalities. 
A) foreign borrowers. 
B) low-quality borrowers. 
C) high-quality borrowers. 
D) local municipalities.

Question 15

Congress has attempted to reduce competition among banks in order to

Accepted Answer

A) increase the tax revenues generated from bank profits. 
B) lower interest rates charged on bank loans. 
C) reduce the chance of moral hazard in banks' behavior. 
D) make the process of check clearing easier. 
A) increase the tax revenues generated from bank profits. 
B) lower interest rates charged on bank loans. 
C) reduce the chance of moral hazard in banks' behavior. 
D) make the process of check clearing easier.

Question 16

The thrift industry began to face serious problems following the rise in interest rates in

Accepted Answer

A) 1929. 
B) 1941. 
C) 1979. 
D) 1990. 
A) 1929. 
B) 1941. 
C) 1979. 
D) 1990.

Question 17

Which of the following was NOT a provision of FIRREA?

Accepted Answer

A) The Office of the Comptroller of the Currency was created to supervise and examine thrifts. 
B) The FSLIC was abolished. 
C) The FHLBB was abolished. 
D) The Resolution Trust Corporation was created to handle the liquidation of assets of failed thrifts. 
A) The Office of the Comptroller of the Currency was created to supervise and examine thrifts. 
B) The FSLIC was abolished. 
C) The FHLBB was abolished. 
D) The Resolution Trust Corporation was created to handle the liquidation of assets of failed thrifts.

Question 18

The development of brokered deposits increased the moral hazard problem of deposit insurance by

Accepted Answer

A) attracting risk-loving depositors. 
B) in effect, allowing the extension of insurance coverage to deposits above the $100,000 limit. 
C) scaring cautious small depositors away from thrifts. 
D) making depositors more conscious of the need to carefully monitor the behavior of thrift managers. 
A) attracting risk-loving depositors. 
B) in effect, allowing the extension of insurance coverage to deposits above the $100,000 limit. 
C) scaring cautious small depositors away from thrifts. 
D) making depositors more conscious of the need to carefully monitor the behavior of thrift managers.

Question 19

In an overnight Eurodollar transaction

Accepted Answer

A) foreign governments borrow dollars from the U.S. Treasury overnight. 
B) a bank customer's demand deposit is automatically withdrawn and deposited in a foreign branch that pays interest. 
C) U.S. tourists deposit dollars in a European bank at the end of the day and receive foreign currency the next morning. 
D) foreign tourists deposit foreign currency in a U.S. bank at the end of the day and receive dollars the next morning. 
A) foreign governments borrow dollars from the U.S. Treasury overnight. 
B) a bank customer's demand deposit is automatically withdrawn and deposited in a foreign branch that pays interest. 
C) U.S. tourists deposit dollars in a European bank at the end of the day and receive foreign currency the next morning. 
D) foreign tourists deposit foreign currency in a U.S. bank at the end of the day and receive dollars the next morning.

Question 20

Which sector of the economy was hurt the worst by the Credit Crunch of 1966?

Accepted Answer

A) The housing industry 
B) The automobile industry 
C) The vacation industry 
D) Local governments 
A) The housing industry 
B) The automobile industry 
C) The vacation industry 
D) Local governments

Exam 15: Banking Regulation: Crisis and Response

The regulatory response stage of the regulatory process consists of all of the following EXCEPT

Which of the following is NOT true of the Depository Institution Deregulation and Monetary Control Act of 1980?

The most important loss to the economy during the 1980s from the thrift crisis was

Which of the following did NOT occur as a result of the weakness of the Fed's actions during the banking crisis of the early 1930s?

Regulation Q

The key to the interest rate risk faced by thrifts was

Certificates of deposit differ from demand deposits in that they

The market for short-term credit exists in large part to

Which of the following statements is accurate?

Which of the following factors contributed to the problems that banks began to face during the 1960s and 1970s?

Under FDICIA, who would have to approve in order for the too-big-to-fail policy to be implemented?

In 1971 money market mutual funds were introduced as an alternative to

Government regulation of banks in the United States

The loss of business to the commercial paper market that banks have suffered has been particularly damaging because most of the lost business was from

Congress has attempted to reduce competition among banks in order to

The thrift industry began to face serious problems following the rise in interest rates in

Which of the following was NOT a provision of FIRREA?

The development of brokered deposits increased the moral hazard problem of deposit insurance by

In an overnight Eurodollar transaction

Which sector of the economy was hurt the worst by the Credit Crunch of 1966?

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