Question 1

If the FDIC decides that a bank is too big to fail,it will use the ________ method,effectively ensuring that ________ depositors will suffer losses.

Accepted Answer

A)  payoff; large 
B)  payoff; no 
C)  purchase and assumption; large 
D)  purchase and assumption; no 
A)  payoff; large 
B)  payoff; no 
C)  purchase and assumption; large 
D)  purchase and assumption; no

Question 2

What is the asymmetric information problem and how does it contribute to our understanding of the structure of bank regulation in the United States and other countries?

Accepted Answer

Asymmetric information, sometimes referr

Question 3

The possibility that the failure of one bank can hasten the failure of other banks is called the

Accepted Answer

A)  bank run effect. 
B)  moral hazard effect. 
C)  contagion effect. 
D)  adverse selection effect. 
A)  bank run effect. 
B)  moral hazard effect. 
C)  contagion effect. 
D)  adverse selection effect.

Question 4

What accounts for the problems facing China's four largest banks?

Accepted Answer

A)  Large loans to inefficient, state-owned enterprises 
B)  Closing of unprofitable branches and laying off unproductive employees 
C)  Selling shares in the bank overseas to raise capital 
D)  All of the above 
A)  Large loans to inefficient, state-owned enterprises 
B)  Closing of unprofitable branches and laying off unproductive employees 
C)  Selling shares in the bank overseas to raise capital 
D)  All of the above

Question 5

The Depository Institutions Deregulation and Monetary Control Act of 1980

Accepted Answer

A)  approved NOW accounts nationwide. 
B)  imposed uniform reserve requirements. 
C)  mandated the phase out of interest-rate ceilings on deposits. 
D)  did all of the above. 
E)  did only A and B of the above. 
A)  approved NOW accounts nationwide. 
B)  imposed uniform reserve requirements. 
C)  mandated the phase out of interest-rate ceilings on deposits. 
D)  did all of the above. 
E)  did only A and B of the above.

Question 6

When bad drivers line up to purchase collision insurance,automobile insurers are subject to the

Accepted Answer

A)  moral hazard problem. 
B)  adverse selection problem. 
C)  assigned risk problem. 
D)  ill queue problem. 
A)  moral hazard problem. 
B)  adverse selection problem. 
C)  assigned risk problem. 
D)  ill queue problem.

Question 7

Why did the United States experience a banking crisis in the 1980s?

Accepted Answer

The United States experienced a banking

Question 8

Regulators attempt to reduce the riskiness of banks' asset portfolios by

Accepted Answer

A)  limiting the amount of loans in particular categories or to individual borrowers. 
B)  prohibiting banks from holding risky assets such as common stocks. 
C)  establishing a minimum interest rate floor that banks can earn on certain assets. 
D)  doing all of the above. 
E)  doing only A and B of the above. 
A)  limiting the amount of loans in particular categories or to individual borrowers. 
B)  prohibiting banks from holding risky assets such as common stocks. 
C)  establishing a minimum interest rate floor that banks can earn on certain assets. 
D)  doing all of the above. 
E)  doing only A and B of the above.

Question 9

Banks do not want to hold too much capital because

Accepted Answer

A)  they do not bear fully the costs of bank failures. 
B)  higher returns on equity are earned when bank capital is smaller, all else equal. 
C)  higher capital levels attract the scrutiny of regulators. 
D)  all of the above. 
E)  only A and B of the above. 
A)  they do not bear fully the costs of bank failures. 
B)  higher returns on equity are earned when bank capital is smaller, all else equal. 
C)  higher capital levels attract the scrutiny of regulators. 
D)  all of the above. 
E)  only A and B of the above.

Question 10

Probably the most important feature of FDICIA is its prompt corrective action provisions which require the FDIC to intervene earlier and more vigorously when a bank gets into trouble.

Accepted Answer

A) True 
 B)False

Question 11

Describe 2 of the 5 different categories of regulation found in the Dodd-Frank legislation of 2010.

Accepted Answer

Two of the five different categories of

Question 12

Some view that Dodd-Frank eliminated the too-big-to-fail problem. How did it achieve this?

Accepted Answer

A)  By making it harder for the Federal Reserve to bail out financial institutions 
B)  By eliminating the Volcker rule 
C)  By reducing the regulation of SIFIs 
D)  All of the above. 
A)  By making it harder for the Federal Reserve to bail out financial institutions 
B)  By eliminating the Volcker rule 
C)  By reducing the regulation of SIFIs 
D)  All of the above.

Question 13

The existence of deposit insurance can increase the likelihood that depositors will need deposit protection,as banks with deposit insurance

Accepted Answer

A)  are likely to take on greater risks than they otherwise would. 
B)  are likely to be too conservative, reducing the probability of turning a profit. 
C)  are likely to regard deposits as an unattractive source of funds due to depositors' demands for safety. 
D)  are placed at a competitive disadvantage in acquiring funds. 
A)  are likely to take on greater risks than they otherwise would. 
B)  are likely to be too conservative, reducing the probability of turning a profit. 
C)  are likely to regard deposits as an unattractive source of funds due to depositors' demands for safety. 
D)  are placed at a competitive disadvantage in acquiring funds.

Question 14

Moral hazard and adverse selection problems increased in prominence in the 1980s

Accepted Answer

A)  as deregulation opened up more avenues for savings and loans and mutual savings banks to take on more risk. 
B)  following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets, thereby widening the scope for risk taking. 
C)  following an increase in federal deposit insurance from $40,000 to $100,000. 
D)  because of all of the above. 
E)  because of only A and B of the above. 
A)  as deregulation opened up more avenues for savings and loans and mutual savings banks to take on more risk. 
B)  following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets, thereby widening the scope for risk taking. 
C)  following an increase in federal deposit insurance from $40,000 to $100,000. 
D)  because of all of the above. 
E)  because of only A and B of the above.

Question 15

A better capitalized bank has more to lose when it fails and is less likely to take less risk.

Accepted Answer

A) True 
 B)False

Question 16

Moral hazard and adverse selection problems increased in prominence in the 1980s

Accepted Answer

A)  as deregulation opened up more avenues for savings and loans and mutual savings banks to take on more risk. 
B)  following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets, thereby widening the scope for risk taking. 
C)  following a decrease in federal deposit insurance from $100,000 to $40,000. 
D)  because of all of the above. 
E)  because of only A and B of the above. 
A)  as deregulation opened up more avenues for savings and loans and mutual savings banks to take on more risk. 
B)  following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets, thereby widening the scope for risk taking. 
C)  following a decrease in federal deposit insurance from $100,000 to $40,000. 
D)  because of all of the above. 
E)  because of only A and B of the above.

Question 17

Deposit insurance

Accepted Answer

A)  attracts risk-prone entrepreneurs to the banking industry. 
B)  encourages bank managers to take on greater risks than they otherwise would. 
C)  reduces the incentives of depositors to monitor the riskiness of their banks' asset portfolios. 
D)  does all of the above. 
E)  does only A and B of the above. 
A)  attracts risk-prone entrepreneurs to the banking industry. 
B)  encourages bank managers to take on greater risks than they otherwise would. 
C)  reduces the incentives of depositors to monitor the riskiness of their banks' asset portfolios. 
D)  does all of the above. 
E)  does only A and B of the above.

Question 18

Prior to the global financial crisis,inaccurate ratings provided by credit rating agencies helped promote risk taking throughout the financial system.

Accepted Answer

A) True 
 B)False

Question 19

The chartering process is especially designed to deal with the ________ problem,and restrictions on asset holdings 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 20

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

Exam 18: Financial Regulation

If the FDIC decides that a bank is too big to fail,it will use the ________ method,effectively ensuring that ________ depositors will suffer losses.

What is the asymmetric information problem and how does it contribute to our understanding of the structure of bank regulation in the United States and other countries?

The possibility that the failure of one bank can hasten the failure of other banks is called the

What accounts for the problems facing China's four largest banks?

The Depository Institutions Deregulation and Monetary Control Act of 1980

When bad drivers line up to purchase collision insurance,automobile insurers are subject to the

Why did the United States experience a banking crisis in the 1980s?

Regulators attempt to reduce the riskiness of banks' asset portfolios by

Banks do not want to hold too much capital because

Probably the most important feature of FDICIA is its prompt corrective action provisions which require the FDIC to intervene earlier and more vigorously when a bank gets into trouble.

Describe 2 of the 5 different categories of regulation found in the Dodd-Frank legislation of 2010.

Some view that Dodd-Frank eliminated the too-big-to-fail problem. How did it achieve this?

The existence of deposit insurance can increase the likelihood that depositors will need deposit protection,as banks with deposit insurance

Moral hazard and adverse selection problems increased in prominence in the 1980s

A better capitalized bank has more to lose when it fails and is less likely to take less risk.

Moral hazard and adverse selection problems increased in prominence in the 1980s

Deposit insurance

Prior to the global financial crisis,inaccurate ratings provided by credit rating agencies helped promote risk taking throughout the financial system.

The chartering process is especially designed to deal with the ________ problem,and restrictions on asset holdings help to reduce the ________ problem.

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

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

If the FDIC decides that a bank is too big to fail,it will use the method,effectively ensuring that depositors will suffer losses.

The chartering process is especially designed to deal with the problem,and restrictions on asset holdings help to reduce the problem.

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