Question 1

More than 90 percent of all insured DIs did not pay deposit insurance premiums in the late 1990s and early 2000s.

Accepted Answer

A) True 
 B)False

Question 2

Currently in the U.S., deposit insurance premiums increase with the amount of risk of the institution.

Accepted Answer

A) True 
 B)False

Question 3

How is the cost of a systemic risk exemption to the least-cost resolution of bank failures shared among banks?

Accepted Answer

A) It is shared equally among all other insured banks. 
B) Additional deposit insurance premiums are imposed on FIs based on their size as measured by their total deposits and borrowed funds excluding subordinated debt. 
C) Additional deposit insurance premiums are imposed on FI based on their size as measured by their total deposits and borrowed funds including subordinated debt. 
D) It is shared equally among all other insured banks based on the profits earned by the FI during the year. 
E) The cost is borne by the bank whose run was responsible for the contagion. 
A) It is shared equally among all other insured banks. 
B) Additional deposit insurance premiums are imposed on FIs based on their size as measured by their total deposits and borrowed funds excluding subordinated debt. 
C) Additional deposit insurance premiums are imposed on FI based on their size as measured by their total deposits and borrowed funds including subordinated debt. 
D) It is shared equally among all other insured banks based on the profits earned by the FI during the year. 
E) The cost is borne by the bank whose run was responsible for the contagion.

Question 4

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. $$\begin{array} { | l | l | l | l | } 
\hline \text { Loans (book value) } & \$ 340 & \text { Insured Deposits } & \$ 200 \
\hline & & \text { Uninsured Deposits } & \$ 100 \
\hline & & \text { Equity } & \$ 40 \
\hline
\end{array}$$ 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?

Accepted Answer

A) $0. 
B) $100 million 
C) $30 million. 
D) $40 million. 
E) $60 million. 
A) $0. 
B) $100 million 
C) $30 million. 
D) $40 million. 
E) $60 million.

Question 5

Which of the following considerations was not imposed by FDICIA in an attempt to increase regulatory discipline?

Accepted Answer

A) The act required improved accounting standards for banks. 
B) The act forbids the use of brokered deposits. 
C) The act required an annual on-site examination of every bank. 
D) The act gave private accountants a greater role in monitoring a bank's performance. 
E) The act produced prompt corrective action capital zones based on observable rules rather than discretion of examiners. 
A) The act required improved accounting standards for banks. 
B) The act forbids the use of brokered deposits. 
C) The act required an annual on-site examination of every bank. 
D) The act gave private accountants a greater role in monitoring a bank's performance. 
E) The act produced prompt corrective action capital zones based on observable rules rather than discretion of examiners.

Question 6

Which of the following refers to the regulators' policy of allowing an FI to continue operating even when its capital funds are fully depleted?

Accepted Answer

A) Capital forbearance. 
B) Prompt corrective action. 
C) Risk-based deposit insurance. 
D) Too-big-to-fail. 
E) Regulatory oversight. 
A) Capital forbearance. 
B) Prompt corrective action. 
C) Risk-based deposit insurance. 
D) Too-big-to-fail. 
E) Regulatory oversight.

Question 7

The number of bank failures in the period of 1933-79 was less than the number of failures from 1980-1989.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

The provision of deposit insurance is similar to the FDIC selling a call option on the assets of a bank allowing the FDIC to exercise the option and seize the bank's assets if the bank becomes insolvent.

Accepted Answer

A) True 
 B)False

Question 12

The following table shows the market value balance sheet of a failed bank ($ millions): $$\begin{array} { | l | l | l | l | } 
\hline \text { Assets } & 400 & \text { Insured Deposits } & \$ 200 \
\hline & & \text { Uninsured Deposits } & \$ 400 \
\hline
\end{array}$$ If the insured depositor transfer resolution method is utilized, what is the cost to insured depositors of bank failure resolution?

Accepted Answer

A) $0. 
B) -$200 million. 
C) $67 million. 
D) $133 million. 
E) $200 million. 
A) $0. 
B) -$200 million. 
C) $67 million. 
D) $133 million. 
E) $200 million.

Question 13

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) required the FDIC to establish risk-based premiums for deposit insurance coverage at banks.

Accepted Answer

A) True 
 B)False

Question 14

Critics of the current FDIC insurance programs often argue that only uninsured depositors have any incentive to discipline riskier banks.

Accepted Answer

A) True 
 B)False

More than 90 percent of all insured DIs did not pay deposit insurance premiums in the late 1990s and early 2000s.

Currently in the U.S., deposit insurance premiums increase with the amount of risk of the institution.

How is the cost of a systemic risk exemption to the least-cost resolution of bank failures shared among banks?

Which of the following considerations was not imposed by FDICIA in an attempt to increase regulatory discipline?

Which of the following refers to the regulators' policy of allowing an FI to continue operating even when its capital funds are fully depleted?

The number of bank failures in the period of 1933-79 was less than the number of failures from 1980-1989.

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

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

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 provision of deposit insurance is similar to the FDIC selling a call option on the assets of a bank allowing the FDIC to exercise the option and seize the bank's assets if the bank becomes insolvent.

The following table shows the 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 insured depositors of bank failure resolution?

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) required the FDIC to establish risk-based premiums for deposit insurance coverage at banks.

Critics of the current FDIC insurance programs often argue that only uninsured depositors have any incentive to discipline riskier banks.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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

Fintech Risks

Liability and Liquidity Management

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

Exam 20: Deposit Insurance and Other Liability Guarantees

More than 90 percent of all insured DIs did not pay deposit insurance premiums in the late 1990s and early 2000s.

Currently in the U.S., deposit insurance premiums increase with the amount of risk of the institution.

How is the cost of a systemic risk exemption to the least-cost resolution of bank failures shared among banks?

Which of the following considerations was not imposed by FDICIA in an attempt to increase regulatory discipline?

Which of the following refers to the regulators' policy of allowing an FI to continue operating even when its capital funds are fully depleted?

The number of bank failures in the period of 1933-79 was less than the number of failures from 1980-1989.

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

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

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 provision of deposit insurance is similar to the FDIC selling a call option on the assets of a bank allowing the FDIC to exercise the option and seize the bank's assets if the bank becomes insolvent.

The following table shows the 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 insured depositors of bank failure resolution?

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) required the FDIC to establish risk-based premiums for deposit insurance coverage at banks.

Critics of the current FDIC insurance programs often argue that only uninsured depositors have any incentive to discipline riskier banks.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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

Fintech Risks

Liability and Liquidity Management

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters