Econ 2035 Test 2 Chapter 11

Which of the following is likely to be more of a problem after the introduction of deposit insurance?

moral hazard

The shadow banking system refers to

nonbank financial institutions such as investment banks and hedge funds.

All of the following are new rules affecting the shadow banking system as a result of the Dodd-Frank Act EXCEPT

securitized loans must now be insured.

Which of the following is NOT a form of a short-term loan in the shadow banking system?

bank deposits

Shadow banks ________ borrow short-term funds that are not federally insured and use them for long-term investment, and therefore ________ to runs similar to those that occurred during

continue to; are vulnerable

As a result of the financial crisis of 2007-2009, the size of the shadow banking system

declined, but remained larger than the commercial banking system.

The FDIC ________ short-term borrowing by shadow banks, and shadow banks are normally ________ to receive loans from the Fed when they suffer liquidity problems.

does not insure; not eligible

Which of the following was the main reason for increased counterparty risk in the shadow banking system prior to the financial crisis of 2007-2009?

increased leverage

The resolution plans of an investment bank that "must describe the company's strategy for rapid and orderly resolution in the event of material financial distress or failure of the company" is called a

living will.

What was the primary reason that Congress initiated deposit insurance in the 1930s?

protect the deposits of individual savers

What regulatory change did Congress approve in 2010 to reduce counterparty risk in the shadow banking system?

push more trading of derivatives onto exchanges

"Nonbank" financial institutions include all of the following EXCEPT

the Federal Reserve.

Which government agency regulates futures markets?

Commodity Futures Trading Commission

Which agency did Congress create in the 1930s to reduce information costs in financial markets?

SEC

Which of the following is NOT a reason that firms in the shadow banking system were more vulnerable than commercial banks during the financial crisis of 2007-2009?

They were more heavily regulated than commercial banks, making them less able to adjust to changing market conditions.