Exam 20: Deposit Insurance and Other Liability Guarantees

A major reason for the deterioration of the deposit insurance funds in the 1980s was the downturn in the technology, manufacturing, and real estate industries.

One of the overall objectives in using subordinated debt in addition to common stock for a DI's capital base is to improve market discipline of a DI's risk structure.

During the 1980s, which of the following was NOT a change in the financial environment that had an inverse impact on U.S.banks and thrifts?

Contagious runs on bank deposits are directed at FIs, whether they are failing or healthy.

By decreasing the use of the discount window as a source of funding for a DI, the Federal Reserve hopes to reduce volatility in the fed funds market.

The FIRREA prohibited all insured financial institutions from accepting brokered deposits or paying interest rates that are significantly higher than existing market rates.

Subordinate debt (SD) has been proposed as a means of increasing the degree of overall market discipline at a depository institution.Which of the following objectives is considered to be achievable when attempting to increase market discipline?

Moral hazard at FIs may

The average cost to the FDIC of each bank failure during the decade of the 1980s was larger than the total cost of all bank failures during the period 1933-79.

The discount window at the Federal Reserve is a suitable substitute for deposit insurance and a possible method of preventing bank runs.

What does a high proportion of brokered deposits indicate?

Deposit insurance contracts can be structured to reduce moral hazard behavior by

During the 1980s, a high proportion of brokered deposits at a DI became an early warning signal of its risk for failure.

The prompt corrective action program of the FDIC Improvement Act allows a bank or thrift to be placed into receivership when the book value of capital to assets falls below 2 percent.

All of the following are associated with contagious runs at DIs EXCEPT

The use of subordinated debt as a replacement for common stock has been proposed as a method of increasing stockholder discipline.

To address the decreasing balance of the FDIC deposit insurance fund during the financial crisis of 2007-2008

The FDICIA of 1991 strengthened the role of regulators to monitor bank asset quality by the following measures EXCEPT

The least cost resolution strategy of FDICIA requires failure resolution alternatives for all banks to be evaluated on a

The policy of capital forbearance practiced by the FSLIC in the late 1980s allowed many commercial banks to remain open even in the face of continuing losses and insolvency.