Econ305 Chapter10

3) Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a ________. A) sequential service constraint B) last-in, first-out constraint C) double-coincidence of wants constraint D) everyone-shares-equally constraint

A

Although the CDIC was created to prevent bank failures, its existence encourages banks to ________. A) take too much risk B) buy too much stock C) open too many branches D) hold too much capital

A

The Basel Accord requires banks to hold as capital an amount that is at least ________ of their risk-weighted assets. A) 8 percent B) 3 percent C) 10 percent D) 5 percent

A

The chartering process is similar to ________ potential borrowers and the restriction of risk assets by regulators is similar to ________ in private financial markets. A) screening; restrictive covenants B) identifying; branching restrictions C) screening; branching restrictions D) identifying; credit rationing

A

The contagion effect refers to the fact that ________. A) the failure of one bank can hasten the failure of other banks B) deposit insurance has eliminated the problem of bank failures C) bank runs involve only insolvent banks D) bank runs involve only sound banks

A

A bank failure is less likely to occur when ________. A) a bank suffers large deposit outflows B) a bank has more bank capital C) a bank holds less government securities D) a bank holds fewer excess reserves

B

Agreements such as the ________ are attempts to standardize international banking regulations. A) UN Bank Accord B) Basel Accord C) GATT Accord D) WTO Accord

B

The CDIC does not insure term deposits with an initial maturity date of more than ________. A) 2 years B) 90 days C) 1 year D) 5 years

B

The Differential Premiums By-law classifies CDIC institutions according to their risk profile. ________ dominate the criteria. A) CAMELS rating B) Capital adequacy measures C) Quantitative aspects D) Qualitative aspects

B

Which of the following is not a reason financial regulation and supervision is difficult in real life? A) Regulated firms lobby politicians to lean on regulators to ease the rules B) Financial institutions are not required to follow the rules C) Unintended consequences may happen if details in the regulations are not precise D) Financial institutions have strong incentives to avoid existing regulations

B

Deposit insurance covers deposits up to $100,000, but as part of a doctrine called "too-big-to-fail" the CDIC sometimes ends up covering all deposits to avoid disrupting the financial system. When the CDIC does this, it uses the ________. A) "inequity" method B) "payoff" method C) "purchase and assumption" method D) "Basel" method

C

If the CDIC decides that a bank is too big to fail, it will use the ________ method, effectively ensuring that ________ depositors will suffer losses. A) payoff; no B) purchase and assumption; large C) purchase and assumption; no D) payoff; large

C

Regulations designed to provide information to the marketplace so that investors can make informed decisions are called ________. A) efficient market requirements B) asset restrictions C) disclosure requirements D) capital requirement

C

The primary rationale for deposit insurance is ________. A) increasing barriers to entry in the banking industry to promote financial stability B) altering risk profiles of both banks and depositors C) protecting depositors from bank insolvency D) increasing creditworthiness of subprime mortgages

C

When depositors lack of information about the quality of bank assets it can lead to ________. A) asset transformation B) sequencing C) bank panics D) bank booms

C

Banks engage in regulatory arbitrage by ________. A) keeping low-risk assets on their books while removing high-risk assets with the same capital requirement B) hiding risky assets from regulators C) buying risky assets from arbitragers D) keeping high-risk assets on their books while removing low-risk assets with the same capital requirement

D

Deposit co-insurance requires that ________. A) there be joint insurance from both bankers and depositors B) the amount of deposits covered by insurance would be lowered C) both the federal and provincial governments provide deposit insurance D) only a percentage of a deposit would be covered by insurance

D

The Basel Accord, an international agreement, requires banks to hold capital based on ________. A) liabilities B) deposits C) the total value of assets D) risk-weighted assets

D

To be considered well capitalized, a bank's leverage ratio must exceed ________ A) 8 percent B) 10 percent C) 3 percent D) 5 percent

D