Exam 1: Why Are Financial Institutions Special

Which of the following measures the difference between the private costs of regulations and the private benefits of those regulations for the producers of financial services?

The proportion of financial assets controlled by deposit-taking institutions has been increasing in recent years.

In an attempt to enhance the net social welfare benefits of the services provided by financial intermediaries, safety and soundness regulation requires a Canadian DTI to hold a minimum level of cash reserves against deposits.

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer?

The more costly it is to supervise the use of funds by a borrower, the less likely a saver will encounter agency costs.

Net regulatory burden for FIs is higher because regulators may require the FI to

Deposit-taking institutions (DTIs) play an important role in the transmission of monetary policy from the Bank of Canada to the rest of the economy primarily because

Safety and soundness regulations include all of the following layers of protection EXCEPT

In its role as a delegated monitor, an FI

Price and quantity restrictions in regulation are usually aimed at determining whether an FI is meeting certain

Payment services provided by members of the Canada Payments Association are an important function of FIs in Canada.

One reason for the increasing proportion of total financial assets controlled by pension funds and investment companies is that these intermediaries exploit the comparative advantages of size and diversification.

Which of the following is true of secondary securities?

When a DI makes a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model, the change is likely to result in

The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system EXCEPT

Secondary securities are securities that serve as collateral for primary securities.

Which function of an FI reduces transaction and information costs between a corporation and individual which may encourage a higher rate of savings?

Which of the following refers to the possibility that a firm's owners or managers will take actions contrary to the promises contained in the covenants of the securities the firm issues to raise funds?

The goal of credit allocation is the encouragement of FIs to diversity the composition of their assets.

As a delegated monitor, an FI's actions reduce agency costs.