Question 1

The result of the too-big-to-fail policy is that ________ banks will take on ________ risks,making bank failures more likely.

Accepted Answer

A) small;fewer 
B) small;greater 
C) big;fewer 
D) big;greater 
A) small;fewer 
B) small;greater 
C) big;fewer 
D) big;greater

Question 2

The FDIC must take steps to close down banks whose equity capital is less than ________ of assets.

Accepted Answer

A) 4% 
B) 3% 
C) 2% 
D) 1% 
A) 4% 
B) 3% 
C) 2% 
D) 1%

Question 3

The Basel Committee ruled that regulators in other countries can ________ the operations of a foreign bank if they believe that it lacks effective oversight.

Accepted Answer

A) restrict 
B) encourage 
C) renegotiate 
D) enhance 
A) restrict 
B) encourage 
C) renegotiate 
D) enhance

Question 4

In May 1991,the FDIC announced that it would sell the government's final 26% stake in Continental Illinois,ending government ownership of the bank that it had rescued in 1984. The FDIC took control of the bank,rather than liquidate it,because it believed that Continental Illinois

Accepted Answer

A) was a good investment opportunity for the government. 
B) could be the Chicago branch of a new governmentally-owned interstate banking system. 
C) was too big to fail. 
D) would become the center of the new midwest region central bank system. 
A) was a good investment opportunity for the government. 
B) could be the Chicago branch of a new governmentally-owned interstate banking system. 
C) was too big to fail. 
D) would become the center of the new midwest region central bank system.

Question 5

As in the United States,an important factor in the banking crises in Norway,Sweden,and Finland was the

Accepted Answer

A) financial liberalization that occurred in the 1980s. 
B) decline in real interest rates that occurred in the 1980s. 
C) high inflation that occurred in the 1980s. 
D) sluggish economic growth that occurred in the 1980s. 
A) financial liberalization that occurred in the 1980s. 
B) decline in real interest rates that occurred in the 1980s. 
C) high inflation that occurred in the 1980s. 
D) sluggish economic growth that occurred in the 1980s.

Question 6

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 7

The Japanese banking system went through a cycle of ________ in the 1990s similar to the one that occurred in the U.S. in the 1980s.

Accepted Answer

A) regulatory forbearance 
B) policy antagonism 
C) regulatory ignorance 
D) policy renewal 
A) regulatory forbearance 
B) policy antagonism 
C) regulatory ignorance 
D) policy renewal

Question 8

Who has regulatory responsibility when a bank operates branches in many countries?

Accepted Answer

A) It is not always clear. 
B) the WTO 
C) the U.S. Federal Reserve System 
D) the first country to submit an application 
A) It is not always clear. 
B) the WTO 
C) the U.S. Federal Reserve System 
D) the first country to submit an application

Question 9

Reasons regulators chose to follow regulatory forbearance rather than to close the insolvent S&Ls include all of the following EXCEPT

Accepted Answer

A) they had insufficient funds to close all of the insolvent S&Ls. 
B) they were friends with the S&L owners. 
C) they hoped the problem would go away. 
D) they did not have the authority to close the insolvent S&Ls. 
A) they had insufficient funds to close all of the insolvent S&Ls. 
B) they were friends with the S&L owners. 
C) they hoped the problem would go away. 
D) they did not have the authority to close the insolvent S&Ls.

Question 10

Banking crises have occurred throughout the world. What similarities do we find when we look at the different countries?

Accepted Answer

Financial deregulation with inadequate s

Question 11

Regulations designed to provide information to the marketplace so that investors can make informed decisions are called

Accepted Answer

A) disclosure requirements. 
B) efficient market requirements. 
C) asset restrictions. 
D) capital requirements. 
A) disclosure requirements. 
B) efficient market requirements. 
C) asset restrictions. 
D) capital requirements.

Question 12

When comparing the banking crisis in the United States to the crises in Latin America,cost to the taxpayers of the government bailouts was

Accepted Answer

A) higher in Latin American than in the United States. 
B) higher in the United States than in Latin America. 
C) about the same in both Latin America and the United States. 
D) positive in Latin America but negative in the United States. 
A) higher in Latin American than in the United States. 
B) higher in the United States than in Latin America. 
C) about the same in both Latin America and the United States. 
D) positive in Latin America but negative in the United States.

Question 13

FIRREA increased the core-capital leverage requirement for thrift institutions from 3% to

Accepted Answer

A) 8%. 
B) 5%. 
C) 10%. 
D) 25%. 
A) 8%. 
B) 5%. 
C) 10%. 
D) 25%.

Question 14

Financial consolidation of banks with other financial services in recent years poses government safety net problems. The safety net intended for depository institutions may be

Accepted Answer

A) extended to other activities such as securities underwriting. 
B) too small to do any good. 
C) filled with large gaps. 
D) unnecessarily increased when there is a problem in an area that does not impact depository institutions. 
A) extended to other activities such as securities underwriting. 
B) too small to do any good. 
C) filled with large gaps. 
D) unnecessarily increased when there is a problem in an area that does not impact depository institutions.

Question 15

The Depository Institutions Deregulation and Monetary Control Act of 1980

Accepted Answer

A) separated investment banks and commercial banks. 
B) restricted the use of ATS accounts. 
C) imposed restrictive usury ceilings on large agricultural loans. 
D) increased deposit insurance from $40,000 to $100,000. 
A) separated investment banks and commercial banks. 
B) restricted the use of ATS accounts. 
C) imposed restrictive usury ceilings on large agricultural loans. 
D) increased deposit insurance from $40,000 to $100,000.

Question 16

China is trying to move its banking system from being strictly ________ owned by having them issue shares overseas.

Accepted Answer

A) state 
B) domestic investor 
C) depositor 
D) domestic corporate 
A) state 
B) domestic investor 
C) depositor 
D) domestic corporate

Question 17

Deposit insurance has not worked well in countries with

Accepted Answer

A) a weak institutional environment. 
B) strong supervision and regulation. 
C) a tradition of the rule of law. 
D) few opportunities for corruption. 
A) a weak institutional environment. 
B) strong supervision and regulation. 
C) a tradition of the rule of law. 
D) few opportunities for corruption.

Question 18

Because of asymmetric information,the failure of one bank can lead to runs on other banks. This is the

Accepted Answer

A) too-big-to-fail effect. 
B) moral hazard problem. 
C) adverse selection problem. 
D) contagion effect. 
A) too-big-to-fail effect. 
B) moral hazard problem. 
C) adverse selection problem. 
D) contagion effect.

Question 19

Regulatory forbearance

Accepted Answer

A) meant delaying the closing of "zombie S&Ls" as their losses mounted during the 1980s. 
B) had the advantage of benefiting healthy S&Ls at the expense of "zombie S&Ls," as insolvent institutions lost deposits to health institutions. 
C) had the advantage of permitting many insolvent S&Ls the opportunity to return to profitability,saving the FSLIC billions of dollars. 
D) increased adverse selection dramatically. 
A) meant delaying the closing of "zombie S&Ls" as their losses mounted during the 1980s. 
B) had the advantage of benefiting healthy S&Ls at the expense of "zombie S&Ls," as insolvent institutions lost deposits to health institutions. 
C) had the advantage of permitting many insolvent S&Ls the opportunity to return to profitability,saving the FSLIC billions of dollars. 
D) increased adverse selection dramatically.

Question 20

Deposit insurance is only one type of government safety net. All of the following are types of government support for troubled financial institutions EXCEPT

Accepted Answer

A) forgiving tax debt. 
B) lending from the central bank. 
C) lending directly from the government's treasury department. 
D) nationalizing and guaranteeing that all creditors will be repaid their loans in full. 
A) forgiving tax debt. 
B) lending from the central bank. 
C) lending directly from the government's treasury department. 
D) nationalizing and guaranteeing that all creditors will be repaid their loans in full.

Exam 10: Economic Analysis of Financial Regulation

The result of the too-big-to-fail policy is that ________ banks will take on ________ risks,making bank failures more likely.

The FDIC must take steps to close down banks whose equity capital is less than ________ of assets.

The Basel Committee ruled that regulators in other countries can ________ the operations of a foreign bank if they believe that it lacks effective oversight.

In May 1991,the FDIC announced that it would sell the government's final 26% stake in Continental Illinois,ending government ownership of the bank that it had rescued in 1984. The FDIC took control of the bank,rather than liquidate it,because it believed that Continental Illinois

As in the United States,an important factor in the banking crises in Norway,Sweden,and Finland was the

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

The Japanese banking system went through a cycle of ________ in the 1990s similar to the one that occurred in the U.S. in the 1980s.

Who has regulatory responsibility when a bank operates branches in many countries?

Reasons regulators chose to follow regulatory forbearance rather than to close the insolvent S&Ls include all of the following EXCEPT

Banking crises have occurred throughout the world. What similarities do we find when we look at the different countries?

Regulations designed to provide information to the marketplace so that investors can make informed decisions are called

When comparing the banking crisis in the United States to the crises in Latin America,cost to the taxpayers of the government bailouts was

FIRREA increased the core-capital leverage requirement for thrift institutions from 3% to

Financial consolidation of banks with other financial services in recent years poses government safety net problems. The safety net intended for depository institutions may be

The Depository Institutions Deregulation and Monetary Control Act of 1980

China is trying to move its banking system from being strictly ________ owned by having them issue shares overseas.

Deposit insurance has not worked well in countries with

Because of asymmetric information,the failure of one bank can lead to runs on other banks. This is the

Regulatory forbearance

Deposit insurance is only one type of government safety net. All of the following are types of government support for troubled financial institutions EXCEPT

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior 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 and the Management of Financial Institutions

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

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

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

The result of the too-big-to-fail policy is that banks will take on risks,making bank failures more likely.