Exam 25: Exploring the Complexities of Financial Services and Regulation

To avoid the moral hazard problem, our preferred risk index ought to tell us that if one financial firm is twice as risky as another, the former will pay FDIC insurance premiums that are twice as high as what the latter will have to pay.

The 1999 Financial Services Modernization (Gramm-Leach-Bliley) Act:

Increasing globalization of the financial and economic system will not be without its cost.

Using the the description or the definition below, identify each of the key terms and concepts presented in this chapter a. The development of new financial-service products. b. The lifting or liberalizing of rules imposed by governments on the financial marketplace and financial institutions. c. Financial-service firms becoming more alike in the services they offer. d. The spreading of financial-service markets across borders and around the globe. e. The tendency of markets to expand territorially due to the advancing technology of communications and growing competition.

Which of the following are prospects for financial markets from breakthroughs in communications technology?

Managers must take into consideration the great power the Internet provides consumers today to:

When a consumer's personal information is stolen and used to access their bank accounts and other assets, it is referred to as "assuming the person's role."

The Federal Reserve has set limits upon how much in total a payments-system participant can owe to everyone else who belongs to the same clearing system.

Using the the description or the definition below, identify each of the key terms and concepts presented in this chapter a. Making the public feel more secure in dealing with financial institutions. b. Key focus or target of regulation for banks and other financial firms in recent years. c. Financial devices to control and manage risk exposure in the financial sector. d. The principal purpose and function of any financial service. e. Linking computers to globally integrated systems in order to store, process and transfer financial information over great distances.

Today, there are loan-backed securities collateralized by such diverse assets as commercial and residential mortgage loans, mobile home loans, credit-card receivables, auto and boat loans, home equity loans and computer equipment leases.

Financial service firms will face a customer increasingly sensitized to differing terms of sale and more ready to transfer his or her business to the cheapest source for the quantity and quality of service desired.

The broader and faster dissemination of information today is contributing to the internationalization of markets, which spurs competition and heightens the need for international cooperation among financial institutions and among government agencies that regulate them.

In 1974, U.S. Congress created the Pension Benefit Guaranty Corporation (PBGC) to insure retirement plans promised to the employees of some private businesses.

A unique feature of the Basle Agreement is that risk weights were applied to each category of assets a bank holds so that riskier banks were forced to hold additional capital in order to protect their depositors.

Can publicly provided insurance help to preserve and protect public confidence in our financial institutions? What are its advantages? How can we as a society be damaged by overly generous, publicly provided insurance plans?

Pocket and hand-held computing devices such as iPods and smart phones will allow both managers of financial-service firms and their customers to instantly record transactions, notes and memos; to fax documents; and to send and retrieve financial data.

One of the causes of the ongoing rush to innovate and develop new financial services and techniques is the rise of intense competition among financial-service providers.

Federal deposit insurance, for example, has protected small depositors but led many banks and thrifts in prior decades to take on greater risk because, for most of the FDIC's history, insurance premiums were the same for all depository institutions, resulting in riskier depository institutions being subsidized by safer institutions.

The Gramm-Leach-Bliley (Financial Services Modernization) Act permitted companies that are part of the same overall financial-service organization to share private customer information with each other unless they voluntarily agreed not to do so.

Financial-service customers today appear to be more sensitive to the risk of losing their funds and are, therefore, less loyal in dealing with any one financial institution.