Question 1

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 2

The contagion effect refers to the fact that ________.

Accepted Answer

A)  deposit insurance has eliminated the problem of bank failures 
B)  bank runs involve only sound banks 
C)  bank runs involve only insolvent banks 
D)  the failure of one bank can hasten the failure of other banks 
A)  deposit insurance has eliminated the problem of bank failures 
B)  bank runs involve only sound banks 
C)  bank runs involve only insolvent banks 
D)  the failure of one bank can hasten the failure of other banks

Question 3

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 4

Agreements such as the ________ are attempts to standardize international banking regulations.

Accepted Answer

A)  Basel Accord 
B)  UN Bank Accord 
C)  GATT Accord 
D)  WTO Accord 
A)  Basel Accord 
B)  UN Bank Accord 
C)  GATT Accord 
D)  WTO Accord

Question 5

Because banks engage in regulatory arbitrage,the Basel Accord on risk-based capital requirements may result in ________.

Accepted Answer

A)  reduced risk taking by banks 
B)  reduced supervision of banks by regulators 
C)  increased fraudulent behavior by banks 
D)  increased risk taking by banks 
A)  reduced risk taking by banks 
B)  reduced supervision of banks by regulators 
C)  increased fraudulent behavior by banks 
D)  increased risk taking by banks

Question 6

Under the Basel Accord,assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________.

Accepted Answer

A)  2; adverse selection 
B)  2; credit risk 
C)  4; adverse selection 
D)  4; credit risk 
A)  2; adverse selection 
B)  2; credit risk 
C)  4; adverse selection 
D)  4; credit risk

Question 7

The 2011 premium rate (as a percentage of insured deposits)for member institutions in risk category 1 was ________.

Accepted Answer

A)  1/36 of 1 percent 
B)  1/18 of 1 percent 
C)  1/9 of 1 percent 
D)  2/9 of 1 percent 
A)  1/36 of 1 percent 
B)  1/18 of 1 percent 
C)  1/9 of 1 percent 
D)  2/9 of 1 percent

Question 8

The S&L Crisis can be analyzed as a principal-agent problem.The agents in this case,the ________,did not have the same incentive to minimize cost to the economy as the principals,the ________.

Accepted Answer

A)  politicians/regulators; taxpayers 
B)  taxpayers; politician/regulators 
C)  taxpayers; bank managers 
D)  bank managers; politicians/regulators 
A)  politicians/regulators; taxpayers 
B)  taxpayers; politician/regulators 
C)  taxpayers; bank managers 
D)  bank managers; politicians/regulators

Question 9

The 2011 premium rate (as a percentage of insured deposits)for member institutions in risk category 2 was ________.

Accepted Answer

A)  1/36 of 1 percent 
B)  1/18 of 1 percent 
C)  1/9 of 1 percent 
D)  2/9 of 1 percent 
A)  1/36 of 1 percent 
B)  1/18 of 1 percent 
C)  1/9 of 1 percent 
D)  2/9 of 1 percent

Question 10

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 11

The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is ________.

Accepted Answer

A)  that the CDIC guarantees all deposits when it uses the "payoff" method 
B)  that the CDIC guarantees all deposits when it uses the "purchase and assumption" method 
C)  that the CDIC is more likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures 
D)  that the CDIC is more likely to use the purchase and assumption method for small institutions because it will be easier to find a purchaser for them compared to large institutions 
A)  that the CDIC guarantees all deposits when it uses the "payoff" method 
B)  that the CDIC guarantees all deposits when it uses the "purchase and assumption" method 
C)  that the CDIC is more likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures 
D)  that the CDIC is more likely to use the purchase and assumption method for small institutions because it will be easier to find a purchaser for them compared to large institutions

Question 12

Off-balance-sheet activities ________.

Accepted Answer

A)  generate fee income with no increase in risk 
B)  increase bank risk but do not increase income 
C)  generate fee income but increase a bank's risk 
D)  generate fee income and reduce risk 
A)  generate fee income with no increase in risk 
B)  increase bank risk but do not increase income 
C)  generate fee income but increase a bank's risk 
D)  generate fee income and reduce risk

Question 13

To prevent bank runs and the consequent bank failures,the Canada established the ________ to provide deposit insurance.

Accepted Answer

A)  CDIC 
B)  OSC 
C)  Bank of Canada 
D)  ATM 
A)  CDIC 
B)  OSC 
C)  Bank of Canada 
D)  ATM

Question 14

What are the three pillars that Basel 2 is based on?

Accepted Answer

Pillar 1 links capital requirements for

Question 15

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 16

FDICIA ________ incentives for banks to hold capital and ________ incentives to take on excessive risk.

Accepted Answer

A)  increased; decreased 
B)  increased; increased 
C)  decreased; decreased 
D)  decreased; increased 
A)  increased; decreased 
B)  increased; increased 
C)  decreased; decreased 
D)  decreased; increased

Question 17

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 18

One of the problems experienced by the savings and loan industry during the 1980s was ________.

Accepted Answer

A)  managers lack of expertise to manage risk in new lines of business 
B)  heavy regulations in the new areas open to S&Ls 
C)  slow growth in lending 
D)  close monitoring by the FSLIC 
A)  managers lack of expertise to manage risk in new lines of business 
B)  heavy regulations in the new areas open to S&Ls 
C)  slow growth in lending 
D)  close monitoring by the FSLIC

Question 19

When regulators chose to allow insolvent S&Ls to continue to operate rather than to close them,they were pursuing a policy of ________.

Accepted Answer

A)  regulatory forbearance 
B)  regulatory kindness 
C)  ostrich reasoning 
D)  ignorance reasoning 
A)  regulatory forbearance 
B)  regulatory kindness 
C)  ostrich reasoning 
D)  ignorance reasoning

Question 20

The Basel Committee ruled that regulators in other countries could ________ of a foreign bank if they feel that it lacks effective oversight.

Accepted Answer

A)  restrict operations 
B)  ban operations 
C)  takeover 
D)  merge operations 
A)  restrict operations 
B)  ban operations 
C)  takeover 
D)  merge operations

Exam 10: Economic Analysis of Financial Regulation

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

The contagion effect refers to the fact that ________.

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

Agreements such as the ________ are attempts to standardize international banking regulations.

Because banks engage in regulatory arbitrage,the Basel Accord on risk-based capital requirements may result in ________.

Under the Basel Accord,assets and off-balance sheet activities were sorted according to ________ categories with each category assigned a different weight to reflect the amount of ________.

The 2011 premium rate (as a percentage of insured deposits)for member institutions in risk category 1 was ________.

The S&L Crisis can be analyzed as a principal-agent problem.The agents in this case,the ________,did not have the same incentive to minimize cost to the economy as the principals,the ________.

The 2011 premium rate (as a percentage of insured deposits)for member institutions in risk category 2 was ________.

The Depository Institutions Deregulation and Monetary Control Act of 1980 ________.

The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is ________.

Off-balance-sheet activities ________.

To prevent bank runs and the consequent bank failures,the Canada established the ________ to provide deposit insurance.

What are the three pillars that Basel 2 is based on?

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

FDICIA ________ incentives for banks to hold capital and ________ incentives to take on excessive risk.

Regulatory forbearance ________.

One of the problems experienced by the savings and loan industry during the 1980s was ________.

When regulators chose to allow insolvent S&Ls to continue to operate rather than to close them,they were pursuing a policy of ________.

The Basel Committee ruled that regulators in other countries could ________ of a foreign bank if they feel that it lacks effective oversight.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour 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 Industry: Structure and Competition

Nonbank Finance

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

Under the Basel Accord,assets and off-balance sheet activities were sorted according to categories with each category assigned a different weight to reflect the amount of .

The S&L Crisis can be analyzed as a principal-agent problem.The agents in this case,the ,did not have the same incentive to minimize cost to the economy as the principals,the .

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

FDICIA incentives for banks to hold capital and incentives to take on excessive risk.