Question 1

When the payoff method is used to resolve a failed bank,both large and small depositors are protected from suffering losses.

Accepted Answer

A) True 
 B)False

Question 2

An impact of the Garn-St.Germain Act of 1982 has been to

Accepted Answer

A)  put savings and loans at a competitive disadvantage. 
B)  make the banking system more competitive. 
C)  give money market mutual funds a competitive advantage. 
D)  do both A and B of the above. 
E)  do both A and C of the above. 
A)  put savings and loans at a competitive disadvantage. 
B)  make the banking system more competitive. 
C)  give money market mutual funds a competitive advantage. 
D)  do both A and B of the above. 
E)  do both A and C of the above.

Question 3

Ways in which bank regulations reduce the adverse selection and moral hazard problems in banking include

Accepted Answer

A)  a chartering process designed to prevent crooks from getting control of a bank. 
B)  restrictions that prevent banks from acquiring certain risky assets, such as common stocks. 
C)  high bank capital requirements to increase the cost of bank failure to the owners. 
D)  all of the above. 
E)  only A and B of the above. 
A)  a chartering process designed to prevent crooks from getting control of a bank. 
B)  restrictions that prevent banks from acquiring certain risky assets, such as common stocks. 
C)  high bank capital requirements to increase the cost of bank failure to the owners. 
D)  all of the above. 
E)  only A and B of the above.

Question 4

The failure of one bank can hasten the failure of others in what is referred to as a contagion effect.

Accepted Answer

A) True 
 B)False

Question 5

To be classified as a well-capitalized bank,a bank's leverage ratio must exceed 8 percent.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not true regarding the Basel 2 proposal to reform the original 1988 Basel Accord?

Accepted Answer

A)  It attempts to link capital requirements more closely to actual risk by expanding the number of risk categories. 
B)  It focuses on assessing the quality of risk management in banking institutions. 
C)  It attempts to improve market discipline by requiring increased disclosure of pertinent information about banks. 
D)  It has been well received by banks and national regulatory agencies. 
A)  It attempts to link capital requirements more closely to actual risk by expanding the number of risk categories. 
B)  It focuses on assessing the quality of risk management in banking institutions. 
C)  It attempts to improve market discipline by requiring increased disclosure of pertinent information about banks. 
D)  It has been well received by banks and national regulatory agencies.

Question 7

Discuss some of the recent banking crises throughout the world.

Accepted Answer

Some recent banking crises that have occ

Question 8

Discuss the role of NINJA loans in the global financial crisis.

Accepted Answer

NINJA loans, which stands for No Income,

Question 9

When regulators engage in microprudential regulation,they focus on ________.

Accepted Answer

A)  the safety and soundness of individual financial institutions 
B)  the credit standards of individual loans 
C)  the safety and soundness of each customer of a financial institution 
D)  the safety and soundness of each asset the financial institution holds 
A)  the safety and soundness of individual financial institutions 
B)  the credit standards of individual loans 
C)  the safety and soundness of each customer of a financial institution 
D)  the safety and soundness of each asset the financial institution holds

Question 10

Why does the safety net created by deposit insurance increase the adverse selection and moral hazard problems in banking? How do bank regulations attempt to overcome these problems?

Accepted Answer

The safety net created by deposit insura

Question 11

The "too-big-to-fail" policy reduces the adverse selection problem in bank regulation.

Accepted Answer

A) True 
 B)False

Question 12

World Bank research on the effects of deposit insurance concludes that

Accepted Answer

A)  adoption of deposit insurance will promote stability and efficiency in the banking systems of emerging-market economies. 
B)  adoption of explicit government deposit insurance is associated with a higher incidence of banking crises. 
C)  adoption of deposit insurance has the greatest benefits in countries that have weaker institutional environments. 
D)  none of the above are true. 
A)  adoption of deposit insurance will promote stability and efficiency in the banking systems of emerging-market economies. 
B)  adoption of explicit government deposit insurance is associated with a higher incidence of banking crises. 
C)  adoption of deposit insurance has the greatest benefits in countries that have weaker institutional environments. 
D)  none of the above are true.

Question 13

As a way of stemming the decline in the number of savings and loans and mutual savings banks,the Garn-St.Germain Act of 1982 allowed

Accepted Answer

A)  money market certificates. 
B)  money market mutual funds. 
C)  money market deposit accounts. 
D)  negotiable order of withdrawal accounts. 
A)  money market certificates. 
B)  money market mutual funds. 
C)  money market deposit accounts. 
D)  negotiable order of withdrawal accounts.

Question 14

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

Accepted Answer

A)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "payoff" method. 
B)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "purchase and assumption" method. 
C)  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)  does both A and B of the above. 
E)  does both B and C of the above. 
A)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "payoff" method. 
B)  guarantees all deposits, not just those under the $250,000 limit, when it uses the "purchase and assumption" method. 
C)  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)  does both A and B of the above. 
E)  does both B and C of the above.

Question 15

One problem of the too-big-to-fail policy is that it ________ the incentives for ________ by big banks.

Accepted Answer

A)  reduces; moral hazard by big banks 
B)  increases; moral hazard by big banks 
C)  reduces; adverse selection by big banks 
D)  increases; adverse selection by big banks 
A)  reduces; moral hazard by big banks 
B)  increases; moral hazard by big banks 
C)  reduces; adverse selection by big banks 
D)  increases; adverse selection by big banks

Question 16

Which of the following categories is not part of the Dodd-Frank legislation of 2010?

Accepted Answer

A)  capital requirements 
B)  consumer protection 
C)  "Volcker Rule" 
D)  derivatives 
A)  capital requirements 
B)  consumer protection 
C)  "Volcker Rule" 
D)  derivatives

Question 17

The Depository Institutions Deregulation and Monetary Control Act of 1980

Accepted Answer

A)  approved NOW accounts nationwide. 
B)  restricted the use of ATS accounts. 
C)  imposed interest rate ceilings on bank loans. 
D)  did all of the above. 
A)  approved NOW accounts nationwide. 
B)  restricted the use of ATS accounts. 
C)  imposed interest rate ceilings on bank loans. 
D)  did all of the above.

Question 18

"Truth in lending" was mandated under the Consumer Protection Act of 1969 and requires all lenders to reveal the annual percentage rate,or APR,on loans.

Accepted Answer

A) True 
 B)False

Question 19

How can we change the way the credit-rating system works to avoid the problems encountered with ratings prior to the Global Financial Crisis?

Accepted Answer

The credit-rating system can be changed

Question 20

One way to avoid the too-big-to-fail problem with banks is to break-up large,systemically important financial institutions. What are the downsides to this solution?

Accepted Answer

One downside to breaking up large, syste

Exam 18: Financial Regulation

When the payoff method is used to resolve a failed bank,both large and small depositors are protected from suffering losses.

An impact of the Garn-St.Germain Act of 1982 has been to

Ways in which bank regulations reduce the adverse selection and moral hazard problems in banking include

The failure of one bank can hasten the failure of others in what is referred to as a contagion effect.

To be classified as a well-capitalized bank,a bank's leverage ratio must exceed 8 percent.

Which of the following is not true regarding the Basel 2 proposal to reform the original 1988 Basel Accord?

Discuss some of the recent banking crises throughout the world.

Discuss the role of NINJA loans in the global financial crisis.

When regulators engage in microprudential regulation,they focus on ________.

Why does the safety net created by deposit insurance increase the adverse selection and moral hazard problems in banking? How do bank regulations attempt to overcome these problems?

The "too-big-to-fail" policy reduces the adverse selection problem in bank regulation.

World Bank research on the effects of deposit insurance concludes that

As a way of stemming the decline in the number of savings and loans and mutual savings banks,the Garn-St.Germain Act of 1982 allowed

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

One problem of the too-big-to-fail policy is that it ________ the incentives for ________ by big banks.

Which of the following categories is not part of the Dodd-Frank legislation of 2010?

The Depository Institutions Deregulation and Monetary Control Act of 1980

"Truth in lending" was mandated under the Consumer Protection Act of 1969 and requires all lenders to reveal the annual percentage rate,or APR,on loans.

How can we change the way the credit-rating system works to avoid the problems encountered with ratings prior to the Global Financial Crisis?

One way to avoid the too-big-to-fail problem with banks is to break-up large,systemically important financial institutions. What are the downsides to this solution?

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

One problem of the too-big-to-fail policy is that it the incentives for by big banks.