Question 1

Under the Basel plan,

Accepted Answer

A)  assets and off-balance sheet activities are assigned to various categories to reflect the degree of credit risk. 
B)  a bank's total capital must equal or exceed 8 percent of total risk-weighted assets. 
C)  both of the above occur. 
D)  none of the above occur. 
A)  assets and off-balance sheet activities are assigned to various categories to reflect the degree of credit risk. 
B)  a bank's total capital must equal or exceed 8 percent of total risk-weighted assets. 
C)  both of the above occur. 
D)  none of the above occur. C

Question 2

One way for bank regulators to assure depositors that a bank is not taking on too much risk is to require the bank to

Accepted Answer

A)  diversify its loan portfolio. 
B)  reduce its equity capital. 
C)  reduce the size of its loan portfolio. 
D)  do both A and B of the above. 
E)  do both B and C of the above. 
A)  diversify its loan portfolio. 
B)  reduce its equity capital. 
C)  reduce the size of its loan portfolio. 
D)  do both A and B of the above. 
E)  do both B and C of the above. A

Question 3

To understand banking regulation in the United States,it is helpful to understand the concepts of asymmetric information,adverse selection,and moral hazard.

Accepted Answer

A) True 
 B)False  True

Question 4

According to some economists,Congress made a mistake when it passed the FDICIA of not requiring the FDIC to assess risk-based insurance premiums.

Accepted Answer

A) True 
 B)False

Question 5

Describe the CAMELS rating system used by bank examiners.

Accepted Answer

The CAMELS rating system is a supervisor

Question 6

Regular bank examinations and restrictions on asset holdings indirectly help to ________ the adverse selection problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be ________ from entering the banking industry.

Accepted Answer

A)  increase; encouraged 
B)  increase; discouraged 
C)  reduce; encouraged 
D)  reduce; discouraged 
A)  increase; encouraged 
B)  increase; discouraged 
C)  reduce; encouraged 
D)  reduce; discouraged

Question 7

What is the primary argument for not giving depositors greater incentive to monitor financial institutions?

Accepted Answer

A)  Experts do not believe that depositors are capable of monitoring banks and imposing discipline on them. 
B)  Banks could be subject to more frequent runs by nervous depositors. 
C)  Both A and B are correct. 
D)  Neither A nor B is correct. 
A)  Experts do not believe that depositors are capable of monitoring banks and imposing discipline on them. 
B)  Banks could be subject to more frequent runs by nervous depositors. 
C)  Both A and B are correct. 
D)  Neither A nor B is correct.

Question 8

Just prior to the global financial crisis,mortgage loans known as NINJA loans were issued to borrowers.What is a NINJA loan?

Accepted Answer

A)  A loan issued by a Japanese bank, thus avoiding U.S. regulation. 
B)  A loan document originated by a mortgage banker named Bruce Lee. 
C)  A loan issued to borrowers with no income, employment, nor assets to speak of. 
D)  A loan issued with a "martial arts" clause. 
A)  A loan issued by a Japanese bank, thus avoiding U.S. regulation. 
B)  A loan document originated by a mortgage banker named Bruce Lee. 
C)  A loan issued to borrowers with no income, employment, nor assets to speak of. 
D)  A loan issued with a "martial arts" clause.

Question 9

How does Dodd-Frank claim to eliminate the too-big-to-fail problem?

Accepted Answer

The Dodd-Frank Wall Street Reform and Co

Question 10

Once a bank has been chartered,it is required to file periodic call reports that reveal the bank's assets and liabilities,income,ownership,and other details.

Accepted Answer

A) True 
 B)False

Question 11

The legislation that separated commercial banking from the securities industry is known as the ________.

Accepted Answer

A)  National Bank Act 
B)  Federal Reserve Act 
C)  Glass-Steagall Act 
D)  McFadden Act 
A)  National Bank Act 
B)  Federal Reserve Act 
C)  Glass-Steagall Act 
D)  McFadden Act

Question 12

In an effort to control the use of derivatives by financial institutions,the Dodd-Frank legislation of 2010 requires ________.

Accepted Answer

A)  standardized derivatives products 
B)  over-the-counter trading (instead of exchange trading) of derivatives products 
C)  an increase in counterparty risk 
D)  all of the above 
A)  standardized derivatives products 
B)  over-the-counter trading (instead of exchange trading) of derivatives products 
C)  an increase in counterparty risk 
D)  all of the above

Question 13

The Federal Deposit Insurance Corporation Improvement Act of 1991

Accepted Answer

A)  reduced the scope of deposit insurance in several ways. 
B)  eliminated restrictions on nationwide banking. 
C)  allowed well-capitalized banks to do some securities underwriting. 
D)  did only A and B of the above. 
E)  did only A and C of the above. 
A)  reduced the scope of deposit insurance in several ways. 
B)  eliminated restrictions on nationwide banking. 
C)  allowed well-capitalized banks to do some securities underwriting. 
D)  did only A and B of the above. 
E)  did only A and C of the above.

Question 14

How has bank regulation in the United States changed since the late 1980s? What accounts for these changes?

Accepted Answer

Bank regulation in the United States has

Question 15

Describe the difference between macroprudential and microprudential regulation.

Accepted Answer

Macroprudential regulation and microprud

Question 16

Discuss the role of mark-to-market accounting during the global financial crisis.Did it help or hurt credit markets and bank lending?

Accepted Answer

Mark-to-market accounting played a signi

Question 17

Discuss some of the problems of Basel 2 that the global financial crisis revealed.

Accepted Answer

Basel 2, which was implemented in 2004,

Question 18

Because asymmetric information problems in the banking industry are a fact of life throughout the world,bank regulation in other countries is similar to that in the United States.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is least likely to accompany financial consolidation and the development of large,complex banking organizations?

Accepted Answer

A)  More financial institutions will be considered too big to fail. 
B)  The government safety net will be extended to include nonbanking activities. 
C)  Moral hazard problems will become less important. 
D)  Banks will have greater incentives and opportunities to take on more risk. 
A)  More financial institutions will be considered too big to fail. 
B)  The government safety net will be extended to include nonbanking activities. 
C)  Moral hazard problems will become less important. 
D)  Banks will have greater incentives and opportunities to take on more risk.

Question 20

In the years just prior to the global financial crisis,mortgage loans were issued to borrowers with no income or employment.

Accepted Answer

A) True 
 B)False

Exam 18: Financial Regulation

Under the Basel plan,

One way for bank regulators to assure depositors that a bank is not taking on too much risk is to require the bank to

To understand banking regulation in the United States,it is helpful to understand the concepts of asymmetric information,adverse selection,and moral hazard.

According to some economists,Congress made a mistake when it passed the FDICIA of not requiring the FDIC to assess risk-based insurance premiums.

Describe the CAMELS rating system used by bank examiners.

Regular bank examinations and restrictions on asset holdings indirectly help to ________ the adverse selection problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be ________ from entering the banking industry.

What is the primary argument for not giving depositors greater incentive to monitor financial institutions?

Just prior to the global financial crisis,mortgage loans known as NINJA loans were issued to borrowers.What is a NINJA loan?

How does Dodd-Frank claim to eliminate the too-big-to-fail problem?

Once a bank has been chartered,it is required to file periodic call reports that reveal the bank's assets and liabilities,income,ownership,and other details.

The legislation that separated commercial banking from the securities industry is known as the ________.

In an effort to control the use of derivatives by financial institutions,the Dodd-Frank legislation of 2010 requires ________.

The Federal Deposit Insurance Corporation Improvement Act of 1991

How has bank regulation in the United States changed since the late 1980s? What accounts for these changes?

Describe the difference between macroprudential and microprudential regulation.

Discuss the role of mark-to-market accounting during the global financial crisis.Did it help or hurt credit markets and bank lending?

Discuss some of the problems of Basel 2 that the global financial crisis revealed.

Because asymmetric information problems in the banking industry are a fact of life throughout the world,bank regulation in other countries is similar to that in the United States.

Which of the following is least likely to accompany financial consolidation and the development of large,complex banking organizations?

In the years just prior to the global financial crisis,mortgage loans were issued to borrowers with no income or employment.

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

Regular bank examinations and restrictions on asset holdings indirectly help to the adverse selection problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be from entering the banking industry.