Question 1

What potential problems are created by regulatory competition?

Accepted Answer

Regulatory competition often allows a fi...

Question 2

The government's too-big-to-fail policy applies to:

Accepted Answer

A)   certain highly populated states where a bank run impacts a large percent of the total population.
B)   large banks whose failure would start a widespread panic in the financial system.
C)   large corporate payroll accounts held by some banks where many people would lose their income.
D)   banks that have branches in more than two states.E) None of the above
F) B) and D)

Question 3

What is the link between the safety net provided by the government to the financial industry and the relatively heavy regulation of the same industry by the government?

Accepted Answer

The link is that the safety net provided...

Question 4

Which of the following is not a pillar of the latest Basel Accord?

Accepted Answer

A)   A revised set of minimum capital requirements
B)   It includes liquidity requirements in addition to capital requirements
C)   It supplements capital requirements based on risk-weighted assets with restrictions on leverage
D)   Uniform international laws for bank regulationE) None of the above
F) A) and B)

Question 5

The original Basel Accord was:

Accepted Answer

A)   the basic set of guidelines the Federal Reserve applies in regulating domestic banks.
B)   a set of guidelines for basic capital requirements for internationally active banks.
C)   an agreement between state and federal regulators to try to have one standard set of guidelines for all banks.
D)   a set of guidelines applied only to international banks operating with U.S. boundaries.E) A) and D)
F) B) and C)

Question 6

The text points out that there is an inverse relationship between the fiscal cost of a bank crisis and real GDP growth. What are some of the reasons that can explain this inverse relationship?

Accepted Answer

One obvious cost is that funds that have...

Question 7

Banks can effectively choose their regulators by deciding whether to:

Accepted Answer

A)   be a private or public corporation.
B)   be a member of the Federal Reserve or not.
C)   purchase FDIC insurance or to forego the coverage.
D)   be chartered at the national or state level.E) None of the above
F) A) and B)

Question 8

During a bank crisis:

Accepted Answer

A)   officials at the Federal Reserve find it easy to sort out solvent from insolvent banks.
B)   it is important for regulators to be able to distinguish insolvent from illiquid banks.
C)   it is easy to determine the market prices of bank's assets.
D)   a bank will go to the central bank for a loan before going to other banks.E) B) and C)
F) All of the above

Question 9

The reason that a run on a single bank can turn into a bank panic that threatens the entire financial system is:

Accepted Answer

A)   information asymmetries.
B)   moral hazard.
C)   the lack of regulation.
D)   the increased reliance on web-based funds transfers.E) A) and B)
F) None of the above

Question 10

In the United Kingdom, regulation of the financial system is concentrated in two agencies. They are:

Accepted Answer

A)   The Federal Deposit Insurance Conglomerate and the Bank of England.
B)   The Financial Conduct Authority and the Bank of England.
C)   The Financial Conduct Authority and English Banking Authority.
D)   The Bank of England and the U.K. Treasury.E) B) and C)
F) B) and D)

Question 11

Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

Accepted Answer

A)   customers will not want to obtain loans from this bank.
B)   equity investors will not be able to sell the bank's stock.
C)   regulators will scrutinize the bank heavily looking for something wrong.
D)   depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand.E) C) and D)
F) All of the above

Question 12

The interbank loans that appear on banks' balance sheets represent what proportion of bank capital?

Accepted Answer

A)   Less than 4 percent
B)   Almost three-fourths
C)   About one-third
D)   Less than one percentE) A) and D)
F) A) and B)

Question 13

The financial crisis of 2007-2009 has made which of the following regulatory goals a top priority for government:

Accepted Answer

A)   disclosure of accounting information.
B)   minimum capital requirements.
C)   avoidance of systemic risk.
D)   promotion of competition.E) A) and B)
F) None of the above

Question 14

One of the unique problems that banks face is:

Accepted Answer

A)   they hold liquid assets to meet illiquid liabilities.
B)   they hold illiquid assets to meet liquid liabilities.
C)   they hold liquid assets to meet liquid liabilities.
D)   both their assets and their liabilities are illiquid.E) A) and B)
F) None of the above

Question 15

Imagine a situation where the deposits at state chartered banks would be insured by a state insurance fund and deposits at nationally chartered banks would be insured by FDIC. How would you expect both depositors and banks would react?

Accepted Answer

Depositors would quickly learn that no s...

Question 16

The government's providing of deposit insurance and functioning as the lender of last resort has significantly:

Accepted Answer

A)   decreased the incentive for bank managers to take on risk.
B)   increased the amount of regulation of banks required, but has had no effect on bank's incentive to take on risk.
C)   increased the incentive for banks to take on risk, but has had no effect on the amount of regulation of banks required.
D)   increased the amount of regulation of banks required and increased the incentive for banks to take on risk.E) All of the above
F) C) and D)

Question 17

Implicit government support for "too-big-to-fail" banks:

Accepted Answer

A)   increases the scrutiny of the bank's risk by large corporate depositors.
B)   reduces the risk faced by depositors with accounts less than $250,000.
C)   reduces the risk faced by depositors with accounts exceeding $250,000.
D)   reduces the moral hazard problem of insuring large banks.E) B) and C)
F) A) and D)

Question 18

Which of the following is not a goal of the Dodd-Frank Act of 2010?

Accepted Answer

A)   To anticipate and prevent financial crises by limiting systemic risk
B)   To end "too big to fail"
C)   To promote competition
D)   To reduce moral hazardE) All of the above
F) A) and C)

Question 19

It is difficult for depositors to know the true health of banks because:

Accepted Answer

A)   regulations prohibit banks making their financial statements publicly available.
B)   the financial statements of banks are too difficult for most people to understand.
C)   most of the information on bank loans is private and based on sophisticated models.
D)   banking is competitive and financial records of banks are not divulged to prevent competitor banks from having an advantage.E) All of the above
F) C) and D)

Question 20

Why is the financial industry inherently more unstable than most other industries?

Accepted Answer

In most other industries the failure of ...

Exam 14: Regulating the Financial System

Imagine a situation where the deposits at state chartered banks would be insured by a state insurance fund and deposits at nationally chartered banks would be insured by FDIC. How would you expect both depositors and banks would react?

Correct AnswerverifiedDepositors would quickly learn that no s...View AnswerShow Answer

Which of the following is not a goal of the Dodd-Frank Act of 2010?

Correct AnswerverifiedShow Answer

The government's providing of deposit insurance and functioning as the lender of last resort has significantly:

Correct AnswerverifiedShow Answer

During a bank crisis:

Correct AnswerverifiedShow Answer

The original Basel Accord was:

Correct AnswerverifiedShow Answer

What potential problems are created by regulatory competition?

Correct AnswerverifiedRegulatory competition often allows a fi...View AnswerShow Answer

In the United Kingdom, regulation of the financial system is concentrated in two agencies. They are:

Correct AnswerverifiedShow Answer

The government's too-big-to-fail policy applies to:

Correct AnswerverifiedShow Answer

The reason that a run on a single bank can turn into a bank panic that threatens the entire financial system is:

Correct AnswerverifiedShow Answer

It is difficult for depositors to know the true health of banks because:

Correct AnswerverifiedShow Answer

The interbank loans that appear on banks' balance sheets represent what proportion of bank capital?

Correct AnswerverifiedShow Answer

One of the unique problems that banks face is:

Correct AnswerverifiedShow Answer

Banks can effectively choose their regulators by deciding whether to:

Correct AnswerverifiedShow Answer

Which of the following is not a pillar of the latest Basel Accord?

Correct AnswerverifiedShow Answer

Implicit government support for "too-big-to-fail" banks:

Correct AnswerverifiedShow Answer

Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:

Correct AnswerverifiedShow Answer

The financial crisis of 2007-2009 has made which of the following regulatory goals a top priority for government:

Correct AnswerverifiedShow Answer

What is the link between the safety net provided by the government to the financial industry and the relatively heavy regulation of the same industry by the government?

Correct AnswerverifiedThe link is that the safety net provided...View AnswerShow Answer

The text points out that there is an inverse relationship between the fiscal cost of a bank crisis and real GDP growth. What are some of the reasons that can explain this inverse relationship?

Correct AnswerverifiedOne obvious cost is that funds that have...View AnswerShow Answer

Why is the financial industry inherently more unstable than most other industries?

Correct AnswerverifiedIn most other industries the failure of ...View AnswerShow Answer

Correct Answer
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Depositors would quickly learn that no s...
View Answer

Correct Answer
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Correct Answer
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Regulatory competition often allows a fi...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The link is that the safety net provided...
View Answer

Correct Answer
verified
One obvious cost is that funds that have...
View Answer

Correct Answer
verified
In most other industries the failure of ...
View Answer