Question 1

According to CDIC risk profiles, ________.

Accepted Answer

A)  group 1 is the best and group 4 is the worst 
B)  group 4 is the best and group 1 is the worst 
C)  all banks are considered to be similar 
D)  there is no way to distinguish between them 
A)  group 1 is the best and group 4 is the worst 
B)  group 4 is the best and group 1 is the worst 
C)  all banks are considered to be similar 
D)  there is no way to distinguish between them

Question 2

The 2017 premium rate (as a percentage of insured deposits) for member institutions in category 4 was ________.

Accepted Answer

A)  3 percent 
B)  6.5 percent 
C)  13.0 percent 
D)  33.33 percent 
A)  3 percent 
B)  6.5 percent 
C)  13.0 percent 
D)  33.33 percent

Question 3

Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a ________.

Accepted Answer

A)  last-in, first-out constraint 
B)  sequential service constraint 
C)  double-coincidence of wants constraint 
D)  everyone-shares-equally constraint 
A)  last-in, first-out constraint 
B)  sequential service constraint 
C)  double-coincidence of wants constraint 
D)  everyone-shares-equally constraint

Question 4

How did the increase in the interest rates in the early 1980s contribute to the insolvency of Canadian Commercial and Northland?

Accepted Answer

The banks suffered from an interest-rate

Question 5

The MacKay Task Force may recommend that the ________.

Accepted Answer

A)  OFSI and CDIC be amalgamated 
B)  CDIC be abolished 
C)  Standards of Sound Business Practices be implemented 
D)  OFSI and CDIC should be separated 
A)  OFSI and CDIC be amalgamated 
B)  CDIC be abolished 
C)  Standards of Sound Business Practices be implemented 
D)  OFSI and CDIC should be separated

Question 6

Banks will be examined at least once a year and given a CAMELS rating by examiners. The L stands for ________.

Accepted Answer

A)  liabilities 
B)  liquidity 
C)  loans 
D)  leverage 
A)  liabilities 
B)  liquidity 
C)  loans 
D)  leverage

Question 7

The Basel Accord, an international agreement, requires banks to hold capital based on ________.

Accepted Answer

A)  risk-weighted assets 
B)  the total value of assets 
C)  liabilities 
D)  deposits 
A)  risk-weighted assets 
B)  the total value of assets 
C)  liabilities 
D)  deposits

Question 8

One of the problems experienced by the savings and loan industry during the 1980s was ________.

Accepted Answer

A)  managers lack of expertise to manage risk in new lines of business 
B)  heavy regulations in the new areas open to S&Ls 
C)  slow growth in lending 
D)  close monitoring by the FSLIC 
A)  managers lack of expertise to manage risk in new lines of business 
B)  heavy regulations in the new areas open to S&Ls 
C)  slow growth in lending 
D)  close monitoring by the FSLIC

Question 9

The practice of keeping high-risk assets on a bank's books while removing low-risk assets with the same capital requirement is known as ________.

Accepted Answer

A)  competition in laxity 
B)  depositor supervision 
C)  regulatory arbitrage 
D)  a dual banking system 
A)  competition in laxity 
B)  depositor supervision 
C)  regulatory arbitrage 
D)  a dual banking system

Question 10

An important factor in producing the subprime mortgage crisis was ________.

Accepted Answer

A)  lax consumer protection regulation 
B)  onerous rules placed on mortgage originators 
C)  weak incentives for mortgage brokers to use complicated mortgage products 
D)  strong incentives for the mortgage brokers to verify income information 
A)  lax consumer protection regulation 
B)  onerous rules placed on mortgage originators 
C)  weak incentives for mortgage brokers to use complicated mortgage products 
D)  strong incentives for the mortgage brokers to verify income information

Question 11

The fact that banks operate on a "sequential service constraint" means that ________.

Accepted Answer

A)  all depositors share equally in the bank's funds during a crisis 
B)  depositors arriving last are just as likely to receive their funds as those arriving first 
C)  depositors arriving first have the best chance of withdrawing their funds 
D)  banks randomly select the depositors who will receive all of their funds 
A)  all depositors share equally in the bank's funds during a crisis 
B)  depositors arriving last are just as likely to receive their funds as those arriving first 
C)  depositors arriving first have the best chance of withdrawing their funds 
D)  banks randomly select the depositors who will receive all of their funds

Question 12

What is the "too-big-to-fail" policy of the CDIC? how is it associated with asymmetric information problems?

Accepted Answer

Students must explain that because the f

Question 13

The primary rationale for deposit insurance is ________.

Accepted Answer

A)  protecting depositors from bank insolvency 
B)  increasing creditworthiness of subprime mortgages 
C)  increasing barriers to entry in the banking industry to promote financial stability 
D)  altering risk profiles of both banks and depositors 
A)  protecting depositors from bank insolvency 
B)  increasing creditworthiness of subprime mortgages 
C)  increasing barriers to entry in the banking industry to promote financial stability 
D)  altering risk profiles of both banks and depositors

Question 14

The cost of rescuing banks ranges from ________ to ________ percent of GDP.

Accepted Answer

A)  1; 57 
B)  1; 11 
C)  1; 13 
D)  4; 57 
A)  1; 57 
B)  1; 11 
C)  1; 13 
D)  4; 57

Question 15

When depositors lack of information about the quality of bank assets it can lead to ________.

Accepted Answer

A)  bank panics 
B)  bank booms 
C)  sequencing 
D)  asset transformation 
A)  bank panics 
B)  bank booms 
C)  sequencing 
D)  asset transformation

Question 16

Deposit co-insurance requires that ________.

Accepted Answer

A)  only a percentage of a deposit would be covered by insurance 
B)  the amount of deposits covered by insurance would be lowered 
C)  there be joint insurance from both bankers and depositors 
D)  both the federal and provincial governments provide deposit insurance 
A)  only a percentage of a deposit would be covered by insurance 
B)  the amount of deposits covered by insurance would be lowered 
C)  there be joint insurance from both bankers and depositors 
D)  both the federal and provincial governments provide deposit insurance

Question 17

A common element in all of the banking crisis episodes in different countries is ________.

Accepted Answer

A)  the existence of a government safety net 
B)  deposit insurance 
C)  increased regulation 
D)  lack of competition 
A)  the existence of a government safety net 
B)  deposit insurance 
C)  increased regulation 
D)  lack of competition

Question 18

The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the ________, did not have the same incentive to minimize cost to the economy as the principals, the ________.

Accepted Answer

A)  politicians/regulators; taxpayers 
B)  taxpayers; politician/regulators 
C)  taxpayers; bank managers 
D)  bank managers; politicians/regulators 
A)  politicians/regulators; taxpayers 
B)  taxpayers; politician/regulators 
C)  taxpayers; bank managers 
D)  bank managers; politicians/regulators

Question 19

The Inspector General of Banks was the predecessor of the ________.

Accepted Answer

A)  Office of the Superintendent of Financial Institutions 
B)  Office of Regulatory Forbearance 
C)  Canadian Commercial Regulatory Committee 
D)  Basel Committee 
A)  Office of the Superintendent of Financial Institutions 
B)  Office of Regulatory Forbearance 
C)  Canadian Commercial Regulatory Committee 
D)  Basel Committee

Question 20

Since depositors, like any lender, only receive fixed payments while the bank keeps any surplus profits, they face the ________ problem that banks may take on too ________ risk.

Accepted Answer

A)  adverse selection; little 
B)  adverse selection; much 
C)  moral hazard; little 
D)  moral hazard; much 
A)  adverse selection; little 
B)  adverse selection; much 
C)  moral hazard; little 
D)  moral hazard; much

Exam 9: Economic Analysis of Financial Regulation

According to CDIC risk profiles, ________.

The 2017 premium rate (as a percentage of insured deposits) for member institutions in category 4 was ________.

Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a ________.

How did the increase in the interest rates in the early 1980s contribute to the insolvency of Canadian Commercial and Northland?

The MacKay Task Force may recommend that the ________.

Banks will be examined at least once a year and given a CAMELS rating by examiners. The L stands for ________.

The Basel Accord, an international agreement, requires banks to hold capital based on ________.

One of the problems experienced by the savings and loan industry during the 1980s was ________.

The practice of keeping high-risk assets on a bank's books while removing low-risk assets with the same capital requirement is known as ________.

An important factor in producing the subprime mortgage crisis was ________.

The fact that banks operate on a "sequential service constraint" means that ________.

What is the "too-big-to-fail" policy of the CDIC? how is it associated with asymmetric information problems?

The primary rationale for deposit insurance is ________.

The cost of rescuing banks ranges from ________ to ________ percent of GDP.

When depositors lack of information about the quality of bank assets it can lead to ________.

Deposit co-insurance requires that ________.

A common element in all of the banking crisis episodes in different countries is ________.

The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the ________, did not have the same incentive to minimize cost to the economy as the principals, the ________.

The Inspector General of Banks was the predecessor of the ________.

Since depositors, like any lender, only receive fixed payments while the bank keeps any surplus profits, they face the ________ problem that banks may take on too ________ risk.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

The cost of rescuing banks ranges from to percent of GDP.

The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the , did not have the same incentive to minimize cost to the economy as the principals, the .

Since depositors, like any lender, only receive fixed payments while the bank keeps any surplus profits, they face the problem that banks may take on too risk.