Question 1

Insured depositors can be covered for much more than $250,000 at any given FI under current FDIC regulations.

Accepted Answer

A) True 
 B)False

Question 2

The cost of insolvency of an FI to the FDIC is offset in part by the deposit insurance premiums paid by the bank.

Accepted Answer

A) True 
 B)False

Question 3

All of the following are associated with contagious runs at DIs EXCEPT

Accepted Answer

A) liability holders not distinguishing between good and bad FIs. 
B) liability holders seeking to quickly turn their liabilities into cash or safe securities. 
C) a contractionary effect on the supply of credit. 
D) negative social welfare effects. 
E) an expansionary effect on the regional money supply. 
A) liability holders not distinguishing between good and bad FIs. 
B) liability holders seeking to quickly turn their liabilities into cash or safe securities. 
C) a contractionary effect on the supply of credit. 
D) negative social welfare effects. 
E) an expansionary effect on the regional money supply.

Question 4

FDICIA imposed additional regulatory discipline as a substitute for increased stockholder and depositor discipline.

Accepted Answer

A) True 
 B)False

Question 5

Pricing deposit insurance premiums to reflect increases in risk-taking by financial institutions is one method to reduce incentives to take risks.

Accepted Answer

A) True 
 B)False

Question 6

One of the overall objectives in using subordinated debt in addition to common stock for a DI's capital base is to improve market discipline of a DI's risk structure.

Accepted Answer

A) True 
 B)False

Question 7

The changes implemented by the Fed in January 2003 to its discount window lending

Accepted Answer

A) decreased the cost of borrowing. 
B) eased the terms of borrowing. 
C) terms of borrowing became less flexible. 
D) resulted in reduction of outstanding discount loan volumes. 
A) decreased the cost of borrowing. 
B) eased the terms of borrowing. 
C) terms of borrowing became less flexible. 
D) resulted in reduction of outstanding discount loan volumes.

Question 8

In the insurance industry,state guarantee funds have a number of important differences from deposit insurance.Which of the following is NOT one of these differences?

Accepted Answer

A) No permanent guarantee fund exists for the insurance industry. 
B) They're run and administered by private insurance companies themselves. 
C) In the event of a failure,the other insurers operating in the state are levied a fee based on the premium income derived within the state. 
D) Small policy holders of the failed institution experience no delay when receiving the cash value of their policies. 
A) No permanent guarantee fund exists for the insurance industry. 
B) They're run and administered by private insurance companies themselves. 
C) In the event of a failure,the other insurers operating in the state are levied a fee based on the premium income derived within the state. 
D) Small policy holders of the failed institution experience no delay when receiving the cash value of their policies.

Question 9

Risk-based capital supports risk-based deposit insurance premiums by increasing the cost risk taking for DI stockholders.

Accepted Answer

A) True 
 B)False

Question 10

How can the regulators reduce the effects of moral hazard in the absence of depositor discipline?

Accepted Answer

A) By allowing DIs to undertake high-risk high-return asset investments. 
B) By basing deposit insurance premiums on a DI's deposit size. 
C) By charging explicit deposit insurance premiums and implicit premiums on DIs. 
D) By exhibiting excessive capital forbearance. 
A) By allowing DIs to undertake high-risk high-return asset investments. 
B) By basing deposit insurance premiums on a DI's deposit size. 
C) By charging explicit deposit insurance premiums and implicit premiums on DIs. 
D) By exhibiting excessive capital forbearance.

Question 11

The discount window at the Federal Reserve is a suitable substitute for deposit insurance and a possible method of preventing bank runs.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is NOT a social welfare effect of bank runs?

Accepted Answer

A) Discipline of incompetent managers. 
B) Negatively affecting the payments function of DIs. 
C) Reduced availability of credit. 
D) Potential decrease in the money supply. 
A) Discipline of incompetent managers. 
B) Negatively affecting the payments function of DIs. 
C) Reduced availability of credit. 
D) Potential decrease in the money supply.

Question 13

The FDICIA of 1991 strengthened the role of regulators to monitor bank asset quality by the following measures EXCEPT

Accepted Answer

A) requiring improved accounting standards for banks. 
B) giving private accountants an increased role in monitoring bank performances. 
C) requiring an annual on-site examination by regulators. 
D) requiring banks to work on achieving market value accounting. 
E) disallowing independent audits. 
A) requiring improved accounting standards for banks. 
B) giving private accountants an increased role in monitoring bank performances. 
C) requiring an annual on-site examination by regulators. 
D) requiring banks to work on achieving market value accounting. 
E) disallowing independent audits.

Question 14

Which of the following methods was NOT a method used to replenish the FDIC's deposit insurance reserve fund during the most recent financial crisis?

Accepted Answer

A) A special assessment was imposed on participating FIs in early 2009. 
B) Individual depositor insurance coverage was increased to $250,000. 
C) Deposit insurance premiums were increased. 
D) Participating institutions were required to pre-pay insurance premiums. 
A) A special assessment was imposed on participating FIs in early 2009. 
B) Individual depositor insurance coverage was increased to $250,000. 
C) Deposit insurance premiums were increased. 
D) Participating institutions were required to pre-pay insurance premiums.

Question 15

The required contribution from surviving insurers to protect policyholders of failed insurance companies usually is on a pro rata amount based on the relative asset size of the surviving company.

Accepted Answer

A) True 
 B)False

Question 16

From January 2008 to December 2009,there were a total of ____ FDIC insured bank failures,which cost the FDIC approximately ____ billion to resolve.

Accepted Answer

A) 26;$17 
B) 140;$39 
C) 166;$56 
D) 211;$69 
A) 26;$17 
B) 140;$39 
C) 166;$56 
D) 211;$69

Question 17

Requiring higher capital ratios often is proposed as method to reduce the incentive to take excessive risk because the moral-hazard risk-taking incentives are thought to decrease as the amount of net worth increases.

Accepted Answer

A) True 
 B)False

Question 18

The Designated Reserve Ratio is a rule that stipulates that highly-rated DIs would not pay deposit insurance premiums if this ratio was above 0.25 percent.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT a differentiation between deposit insurance and state guaranty funds for the insurance industry?

Accepted Answer

A) The required contributions provided by surviving insurers differs widely across states. 
B) The annual pro rata contributions often are legally capped for each insurer as a percent of premium income. 
C) A permanent guaranty fund does not exist for the insurance industry. 
D) Contributions by surviving firms into the guaranty fund occur before an insurance company has failed. 
A) The required contributions provided by surviving insurers differs widely across states. 
B) The annual pro rata contributions often are legally capped for each insurer as a percent of premium income. 
C) A permanent guaranty fund does not exist for the insurance industry. 
D) Contributions by surviving firms into the guaranty fund occur before an insurance company has failed.

Question 20

A run on a bank is not necessarily a bad occurrence.

Accepted Answer

A) True 
 B)False

Exam 19: Deposit Insurance and Other Liability Guarantees

Insured depositors can be covered for much more than $250,000 at any given FI under current FDIC regulations.

The cost of insolvency of an FI to the FDIC is offset in part by the deposit insurance premiums paid by the bank.

All of the following are associated with contagious runs at DIs EXCEPT

FDICIA imposed additional regulatory discipline as a substitute for increased stockholder and depositor discipline.

Pricing deposit insurance premiums to reflect increases in risk-taking by financial institutions is one method to reduce incentives to take risks.

One of the overall objectives in using subordinated debt in addition to common stock for a DI's capital base is to improve market discipline of a DI's risk structure.

The changes implemented by the Fed in January 2003 to its discount window lending

In the insurance industry,state guarantee funds have a number of important differences from deposit insurance.Which of the following is NOT one of these differences?

Risk-based capital supports risk-based deposit insurance premiums by increasing the cost risk taking for DI stockholders.

How can the regulators reduce the effects of moral hazard in the absence of depositor discipline?

The discount window at the Federal Reserve is a suitable substitute for deposit insurance and a possible method of preventing bank runs.

Which of the following is NOT a social welfare effect of bank runs?

The FDICIA of 1991 strengthened the role of regulators to monitor bank asset quality by the following measures EXCEPT

Which of the following methods was NOT a method used to replenish the FDIC's deposit insurance reserve fund during the most recent financial crisis?

The required contribution from surviving insurers to protect policyholders of failed insurance companies usually is on a pro rata amount based on the relative asset size of the surviving company.

From January 2008 to December 2009,there were a total of ____ FDIC insured bank failures,which cost the FDIC approximately ____ billion to resolve.

Requiring higher capital ratios often is proposed as method to reduce the incentive to take excessive risk because the moral-hazard risk-taking incentives are thought to decrease as the amount of net worth increases.

The Designated Reserve Ratio is a rule that stipulates that highly-rated DIs would not pay deposit insurance premiums if this ratio was above 0.25 percent.

Which of the following is NOT a differentiation between deposit insurance and state guaranty funds for the insurance industry?

A run on a bank is not necessarily a bad occurrence.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

From January 2008 to December 2009,there were a total of FDIC insured bank failures,which cost the FDIC approximately billion to resolve.