Exam 19: Deposit Insurance and Other Liability Guarantees

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?

As a result of loan write-offs, Bank A has to be liquidated by the regulators. The book value of the assets and liabilities of the bank is presented below (in millions of dollars). The market value of the loans has been estimated at $240 million. Loans (book value) \ 340 Insured Deposits \ 200 Uninsured Deposits \ 100 Equity \ 40 -What is the cost to the insured depositors if the insured depositor transfer resolution method is used by the regulators to resolve the bank failure?

The FDIC deposit insurance program is also available to credit unions.

The ability of the FDIC to place a bank into receivership even though the book value of capital remains positive is an attempt to institute increased stockholder discipline.

The following market value balance sheet of a failed bank ($ millions) Assets 400 Insured Deposits \ 200 Uninsured Deposits \ 400 -If the insured depositor transfer resolution method is utilized, what is the cost to the FDIC of bank failure resolution?

The insured depositor transfer method of failure resolution

Because deposit insurance premiums were not priced in an actuarially fair manner during the period from 1933-1980s, instability was created in the credit and monetary system.

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.

A major reason for the deterioration of the deposit insurance funds in the 1980s was the downturn in the technology, manufacturing, and real estate industries.

The least cost resolution strategy of FDICIA requires failure resolution alternatives for all banks to be evaluated on a

The following market value balance sheet of a failed bank ($ millions) Assets 400 Insured Deposits \ 200 Uninsured Deposits \ 400 -What is the market value of capital?

The regulatory practice of excessive capital forbearance is a method of reducing the short-run and long-run costs to deposit insurance funds.

State guaranty funds for insurance companies are sponsored by state insurance regulators rather than by a federal agency such as the FDIC.

If regulators provide more protection against bank runs, the incidence of moral hazard is likely to increase.

Moral hazard at FIs may

The introduction of prompt corrective action capital zones by FDICIA was an attempt to place greater decision-making power at the discretion of regulators rather than on objective, measurable rules.

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

The insured depositor transfer method of least-cost bank failure resolution requires the FDIC to employ the method that imposes the highest amount of failure costs on uninsured depositors.

Under the option pricing model of deposit insurance, the cost of the insurance

Interest rates charged to healthy banks that use the Federal Reserve discount window are typically set one percent below the fed funds target interest rate.