Question 1

The CAMELS ratings are:

Accepted Answer

A)  made public monthly to the financial markets so people can judge the relative quality of banks. 
B)  published once a quarter in banking journals issued by the Federal Reserve. 
C)  included in the annual report of publicly owned banks. 
D)  not made public. 
A)  made public monthly to the financial markets so people can judge the relative quality of banks. 
B)  published once a quarter in banking journals issued by the Federal Reserve. 
C)  included in the annual report of publicly owned banks. 
D)  not made public.

Question 2

Which of the following regulates commercial banks as well as savings banks and savings and loans?

Accepted Answer

A)  The Federal Reserve System 
B)  Securities and Exchange Commission 
C)  The Office of the Comptroller of the Currency 
D)  The Internal Revenue Service 
A)  The Federal Reserve System 
B)  Securities and Exchange Commission 
C)  The Office of the Comptroller of the Currency 
D)  The Internal Revenue Service

Question 3

If the government did not offer the too-big-to-fail safety net:

Accepted Answer

A)  large banks would be more disciplined by the potential loss of large corporate accounts. 
B)  the moral hazard problem of insuring large banks would increase. 
C)  the moral hazard problem of insuring large banks would not be affected. 
D)  the FDIC deposit insurance limits would have to be raised. 
A)  large banks would be more disciplined by the potential loss of large corporate accounts. 
B)  the moral hazard problem of insuring large banks would increase. 
C)  the moral hazard problem of insuring large banks would not be affected. 
D)  the FDIC deposit insurance limits would have to be raised.

Question 4

Discuss the ramifications of the FDIC reducing deposit insurance limits to $25,000.

Accepted Answer

If deposit insurance limits were reduced

Question 5

Prior to the financial crisis of 2007-2009 banks did all but which of the following to bulk up their profit:

Accepted Answer

A)  bought or sponsored hedge funds. 
B)  traded securities for customers. 
C)  purchased equities for their own account. 
D)  colluded to fix benchmark interest rates. 
A)  bought or sponsored hedge funds. 
B)  traded securities for customers. 
C)  purchased equities for their own account. 
D)  colluded to fix benchmark interest rates.

Question 6

The CAMELS criteria to evaluate the health of banks by supervisors is not made public. Make a case for one making this information public and a case for keeping it private.

Accepted Answer

The case for making it public would be t

Question 7

Following the consolidation that resulted from the 2007-2009 financial crisis in the U.S., the 4 largest commercial banks share of total deposits was:

Accepted Answer

A)  73%. 
B)  50%. 
C)  36%. 
D) 25%. 
A)  73%. 
B)  50%. 
C)  36%. 
D) 25%.

Question 8

Explain how bank regulators seem to face a bit of a paradox regarding preventing monopoly power by banks and spurring competition.

Accepted Answer

One of the goals of banking regulators i

Question 9

Savings banks and savings and loans are regulated by a combination of agencies which includes all of the following except:

Accepted Answer

A)  The Federal Reserve System. 
B)  The Comptroller of the Currency. 
C)  The Federal Deposit Insurance Corporation. 
D)  state authorities. 
A)  The Federal Reserve System. 
B)  The Comptroller of the Currency. 
C)  The Federal Deposit Insurance Corporation. 
D)  state authorities.

Question 10

Deposit insurance only seems to be viable at the federal level. This is likely due to the fact that:

Accepted Answer

A)  state funds are less informed about the solvency of national banks. 
B)  a run on the banks within a state will always spread countrywide. 
C)  the U.S. Treasury backs the FDIC and can therefore withstand virtually any crisis. 
D)  the cost of state insurance is prohibitively high. 
A)  state funds are less informed about the solvency of national banks. 
B)  a run on the banks within a state will always spread countrywide. 
C)  the U.S. Treasury backs the FDIC and can therefore withstand virtually any crisis. 
D)  the cost of state insurance is prohibitively high.

Question 11

A long-standing goal of financial regulators has been to:

Accepted Answer

A)  prevent banks from growing too big and powerful. 
B)  minimize the competition that banks face. 
C)  encourage banks to grow as large as possible. 
D)  discourage small rural banks. 
A)  prevent banks from growing too big and powerful. 
B)  minimize the competition that banks face. 
C)  encourage banks to grow as large as possible. 
D)  discourage small rural banks.

Question 12

Briefly describe the combination of strategies used by government officials to protect investors and ensure the stability of the financial system.

Accepted Answer

Government officials employ a combinatio

Question 13

As a result of government provided deposit insurance, the ratio of assets to capital for commercial banks since the 1920s has:

Accepted Answer

A)  just about doubled. 
B)  almost tripled. 
C)  not changed. 
D)  decreased. 
A)  just about doubled. 
B)  almost tripled. 
C)  not changed. 
D)  decreased.

Question 14

What is meant by the problem of time consistency in the conduct of financial system policy?

Accepted Answer

In good times, governments and central b

Question 15

Why is it that a run on a single bank can turn into a widespread financial panic, or what the text identified as contagion?

Accepted Answer

The reason for the spread of panic or co

Question 16

The federal government is concerned about the health of the banking system for many reasons, the most important of which may be:

Accepted Answer

A)  banks are where government bonds are traded. 
B)  a significant number of people are employed in the banking industry. 
C)  many people earn the majority of their income from interest on bank deposits. 
D)  banks are of great importance in enabling the economy to operate efficiently. 
A)  banks are where government bonds are traded. 
B)  a significant number of people are employed in the banking industry. 
C)  many people earn the majority of their income from interest on bank deposits. 
D)  banks are of great importance in enabling the economy to operate efficiently.

Question 17

On November 20, 1985, the Bank of New York needed to use the lender of last resort function due to:

Accepted Answer

A)  a run on the bank started by a rumor that the president of the bank embezzled tens of millions of dollars from the bank. 
B)  a computer error caused the bank's records to wipe out the balances of all of its customers. 
C)  a rumor that the bank was about to be taken over by FDIC due to insolvency. 
D)  a computer error that made it impossible for the bank to keep track of its Treasury bond trades. 
A)  a run on the bank started by a rumor that the president of the bank embezzled tens of millions of dollars from the bank. 
B)  a computer error caused the bank's records to wipe out the balances of all of its customers. 
C)  a rumor that the bank was about to be taken over by FDIC due to insolvency. 
D)  a computer error that made it impossible for the bank to keep track of its Treasury bond trades.

Question 18

Recession can cause widespread bank crises for all of the following reasons except:

Accepted Answer

A)  there is less business investment as banks make fewer loans. 
B)  borrowers' default rates increase. 
C)  bank capital increases. 
D)  the negative effect on banks' balance sheets. 
A)  there is less business investment as banks make fewer loans. 
B)  borrowers' default rates increase. 
C)  bank capital increases. 
D)  the negative effect on banks' balance sheets.

Question 19

Considering the methods available to the FDIC for dealing with a failed bank, the depositors of the failed bank should:

Accepted Answer

A)  be indifferent between the two since it really does not matter to them which method is used. 
B)  prefer the purchase and assumption method since the deposits over $250,000 will also be protected. 
C)  prefer the payoff method because they will have access to their funds earlier. 
D)  prefer the payoff method since a lot less paperwork is involved for the depositor. 
A)  be indifferent between the two since it really does not matter to them which method is used. 
B)  prefer the purchase and assumption method since the deposits over $250,000 will also be protected. 
C)  prefer the payoff method because they will have access to their funds earlier. 
D)  prefer the payoff method since a lot less paperwork is involved for the depositor.

Question 20

When healthy banks fail due to widespread bank panics, those who are likely to be hurt are:

Accepted Answer

A)  government regulators. 
B)  households and small businesses. 
C)  the FDIC. 
D)  the Federal Reserve. 
A)  government regulators. 
B)  households and small businesses. 
C)  the FDIC. 
D)  the Federal Reserve.

Exam 14: Regulating the Financial System

The CAMELS ratings are:

Which of the following regulates commercial banks as well as savings banks and savings and loans?

If the government did not offer the too-big-to-fail safety net:

Discuss the ramifications of the FDIC reducing deposit insurance limits to $25,000.

Prior to the financial crisis of 2007-2009 banks did all but which of the following to bulk up their profit:

The CAMELS criteria to evaluate the health of banks by supervisors is not made public. Make a case for one making this information public and a case for keeping it private.

Following the consolidation that resulted from the 2007-2009 financial crisis in the U.S., the 4 largest commercial banks share of total deposits was:

Explain how bank regulators seem to face a bit of a paradox regarding preventing monopoly power by banks and spurring competition.

Savings banks and savings and loans are regulated by a combination of agencies which includes all of the following except:

Deposit insurance only seems to be viable at the federal level. This is likely due to the fact that:

A long-standing goal of financial regulators has been to:

Briefly describe the combination of strategies used by government officials to protect investors and ensure the stability of the financial system.

As a result of government provided deposit insurance, the ratio of assets to capital for commercial banks since the 1920s has:

What is meant by the problem of time consistency in the conduct of financial system policy?

Why is it that a run on a single bank can turn into a widespread financial panic, or what the text identified as contagion?

The federal government is concerned about the health of the banking system for many reasons, the most important of which may be:

On November 20, 1985, the Bank of New York needed to use the lender of last resort function due to:

Recession can cause widespread bank crises for all of the following reasons except:

Considering the methods available to the FDIC for dealing with a failed bank, the depositors of the failed bank should:

When healthy banks fail due to widespread bank panics, those who are likely to be hurt are:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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