Question 1

The current supervisory practice toward risk management

Accepted Answer

A)  focuses on the quality of a bank's balance sheet. 
B)  determines whether capital requirements have been met. 
C)  evaluates the soundness of a bank's risk-management process. 
D)  focuses on eliminating all risk. 
A)  focuses on the quality of a bank's balance sheet. 
B)  determines whether capital requirements have been met. 
C)  evaluates the soundness of a bank's risk-management process. 
D)  focuses on eliminating all risk.

Question 2

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 3

The ________ that required separation of commercial and investment banking was repealed in 1999.

Accepted Answer

A)  the Federal Reserve Act. 
B)  the Glass-Steagall Act. 
C)  the Bank Holding Company Act. 
D)  the Monetary Control Act. 
A)  the Federal Reserve Act. 
B)  the Glass-Steagall Act. 
C)  the Bank Holding Company Act. 
D)  the Monetary Control Act.

Question 4

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 5

Banks are required to file ________ usually quarterly that list information on the bank's assets and liabilities,income and dividends,and so forth.

Accepted Answer

A)  call reports 
B)  balance reports 
C)  regulatory sheets 
D)  examiner updates 
A)  call reports 
B)  balance reports 
C)  regulatory sheets 
D)  examiner updates

Question 6

In the ten year period 1981-1990,1202 commercial banks were closed,with a peak of 206 failures in 1989.This rate of failures was approximately ________ times greater than that in the period from 1934 to 1980.

Accepted Answer

A)  two 
B)  three 
C)  five 
D)  ten 
A)  two 
B)  three 
C)  five 
D)  ten

Question 7

The Argentine banking crisis of 2001 resulted from Argentina's banks being required to

Accepted Answer

A)  purchase large amounts of government debt. 
B)  pay back the value of failed loans. 
C)  make risky real estate loans. 
D)  make loans to only state-owned businesses. 
A)  purchase large amounts of government debt. 
B)  pay back the value of failed loans. 
C)  make risky real estate loans. 
D)  make loans to only state-owned businesses.

Question 8

The major provisions of the Competitive Equality Banking Act of 1987 include

Accepted Answer

A)  expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system. 
B)  the establishment of the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership. 
C)  directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance. 
D)  prompt corrective action when a bank gets in trouble. 
A)  expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system. 
B)  the establishment of the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership. 
C)  directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance. 
D)  prompt corrective action when a bank gets in trouble.

Question 9

The evidence from banking crises in other countries indicates that

Accepted Answer

A)  deposit insurance is to blame in each country. 
B)  a government safety net for depositors need not increase moral hazard. 
C)  regulatory forbearance never leads to problems. 
D)  deregulation combined with poor regulatory supervision raises moral hazard incentives. 
A)  deposit insurance is to blame in each country. 
B)  a government safety net for depositors need not increase moral hazard. 
C)  regulatory forbearance never leads to problems. 
D)  deregulation combined with poor regulatory supervision raises moral hazard incentives.

Question 10

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 11

The chartering process is especially designed to deal with the ________ problem,and regular bank examinations help to reduce the ________ problem.

Accepted Answer

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

Question 12

Prior to the 1980s,S&Ls and mutual savings banks were restricted almost entirely to

Accepted Answer

A)  commercial real estate loans. 
B)  home mortgages. 
C)  education loans. 
D)  vacation loans. 
A)  commercial real estate loans. 
B)  home mortgages. 
C)  education loans. 
D)  vacation loans.

Question 13

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 14

The Depository Institutions Deregulation and Monetary Control Act of 1980

Accepted Answer

A)  restricted thrift institutions to making loans for home mortgages. 
B)  restricted the use of ATS accounts. 
C)  imposed restrictive interest-rate ceilings on large agricultural loans. 
D)  increased deposit insurance from $40,000 to $100,000. 
A)  restricted thrift institutions to making loans for home mortgages. 
B)  restricted the use of ATS accounts. 
C)  imposed restrictive interest-rate ceilings on large agricultural loans. 
D)  increased deposit insurance from $40,000 to $100,000.

Question 15

The Resolution Trust Corporation was created by the FIRREA in order to

Accepted Answer

A)  manage and resolve insolvent S&Ls. 
B)  build up trust in government regulation. 
C)  regulate the S&L industry. 
D)  purchase large amounts of government debt. 
A)  manage and resolve insolvent S&Ls. 
B)  build up trust in government regulation. 
C)  regulate the S&L industry. 
D)  purchase large amounts of government debt.

Question 16

Regulations that reduced competition between banks included

Accepted Answer

A)  branching restrictions. 
B)  bank reserve requirements. 
C)  the dual system of granting bank charters. 
D)  interest-rate ceilings. 
A)  branching restrictions. 
B)  bank reserve requirements. 
C)  the dual system of granting bank charters. 
D)  interest-rate ceilings.

Question 17

Firms that are designated as systemically important financial institutions (SIFIs)are subject to all of the following additional Federal Reserve regulations except

Accepted Answer

A)  higher capital standards. 
B)  stricter liquidity requirements. 
C)  providing a plan for orderly liquidation if necessary. 
D)  interest rate ceilings on time deposits. 
A)  higher capital standards. 
B)  stricter liquidity requirements. 
C)  providing a plan for orderly liquidation if necessary. 
D)  interest rate ceilings on time deposits.

Question 18

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 19

That several hundred S&Ls were not even examined once in the period January 1984 through June 1986 can be explained by

Accepted Answer

A)  Congress's unwillingness to allocate the necessary funds to thrift regulators. 
B)  regulators' reluctance to find the specific problem thrifts that they knew existed. 
C)  slower growth in lending meant that less regulation was needed. 
D)  Congress's unwillingness to listen to campaign contributors. 
A)  Congress's unwillingness to allocate the necessary funds to thrift regulators. 
B)  regulators' reluctance to find the specific problem thrifts that they knew existed. 
C)  slower growth in lending meant that less regulation was needed. 
D)  Congress's unwillingness to listen to campaign contributors.

Question 20

An analysis of the political economy of the savings and loan crisis helps one to understand

Accepted Answer

A)  why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging closing of insolvent thrifts. 
B)  why thrift regulators were so quick to inform Congress of the problems that existed in the thrift industry. 
C)  why thrift regulators willingly acceded to pressures placed upon them by members of Congress. 
D)  why politicians listened so closely to the taxpayers they represented. 
A)  why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging closing of insolvent thrifts. 
B)  why thrift regulators were so quick to inform Congress of the problems that existed in the thrift industry. 
C)  why thrift regulators willingly acceded to pressures placed upon them by members of Congress. 
D)  why politicians listened so closely to the taxpayers they represented.

Exam 11: Economic Analysis of Financial Regulation

The current supervisory practice toward risk management

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

The ________ that required separation of commercial and investment banking was repealed in 1999.

Regulatory forbearance

Banks are required to file ________ usually quarterly that list information on the bank's assets and liabilities,income and dividends,and so forth.

In the ten year period 1981-1990,1202 commercial banks were closed,with a peak of 206 failures in 1989.This rate of failures was approximately ________ times greater than that in the period from 1934 to 1980.

The Argentine banking crisis of 2001 resulted from Argentina's banks being required to

The major provisions of the Competitive Equality Banking Act of 1987 include

The evidence from banking crises in other countries indicates that

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

The chartering process is especially designed to deal with the ________ problem,and regular bank examinations help to reduce the ________ problem.

Prior to the 1980s,S&Ls and mutual savings banks were restricted almost entirely to

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

The Depository Institutions Deregulation and Monetary Control Act of 1980

The Resolution Trust Corporation was created by the FIRREA in order to

Regulations that reduced competition between banks included

Firms that are designated as systemically important financial institutions (SIFIs)are subject to all of the following additional Federal Reserve regulations except

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

That several hundred S&Ls were not even examined once in the period January 1984 through June 1986 can be explained by

An analysis of the political economy of the savings and loan crisis helps one to understand

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Banking and the Management of Financial Institutions

Banking Industry: Structure and Competition

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

The ISLM Model

Filters

The chartering process is especially designed to deal with the problem,and regular bank examinations help to reduce the problem.

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