Intl Chap. 20/ 20.3

8) Banks in the U.S.

A) cannot hold common stocks.

23) What is an appropriate definition for "securitization"?

A) the repackaging of bank assets into readily marketable forms

31) Describe the extensive "safety net" that has been set up in the United States in order to reduce the risk of bank failure.

Answer: (1) Deposit insurance (2) Reserve requirements (3) Capital requirements and asset restrictions (4) Bank examination (5) Lender of last resort facilities

12) In the U.S., banks

B) may be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid.

18) The case where people purposely act in a careless way, for example, driving recklessly because they are insured, is called

C) moral hazard.

26) Did the Bank of England intervene and perform its Lender of Last Resort responsibility to end the panic in August 2007?

C) yes, only after a bank run and under pressure from the British financial industry

14) Which statement is NOT true regarding emerging markets?

D) Countries with emerging markets have been unable to liberalize their financial systems to allow private trade with foreigners.

10) In the U.S., the following agencies have the right to examine the bank's books

D) FDIC, Fed and the Office of the Comptroller of the Currency.

9) Banks in the U.S.

A) are prevented from holding assets that are "too risky."

5) Which of the following statements is TRUE for the U.S.?

A) Federally chartered banks are required to make contributions to the FDIC to cover the cost of bank

4) Which of the following statements is TRUE for the U.S.?

A) The Federal Deposit Insurance Corporation (FDIC) insures bank deposits against losses up to $250,000.

24) What caused a major economic shock in August 2007?

A) U.S. mortgage market

17) The purpose of the Basel Committee was to

A) achieve a better coordination of the surveillance exercised by national authorities over the international banking system.

21) What is a difficulty encountered in regulating international banking?

B) absence of reserve requirements

11) In the U.S., banks

B) can be forced to sell assets that the bank examiner deems too risky.

7) Banks in the U.S.

B) face rules against lending too large a fraction of their assets to a single private customer or to a single foreign government borrower.

1) For the following question, assume the following facts: (1) Chase (which is located in the United States) has a 20% reserve requirement imposed by the government. (2) Bank of Germany has no reserve requirements. (3) Both banks may invest at an 8% interest rate. (4) Both banks have fixed costs of $3 per deposit made. What is the difference between the minimum interest rates each bank can offer and still make a profit if the deposit is $500 for 1 year?

C) 1.6%

3) Which of the following statements is TRUE?

C) Bank failures inflict not only serious financial harm on individual depositors, but also harm the macroeconomic stability of the economy.

13) A bank faced with the wholesale loss of deposits is likely to shut down despite fundamentally sound balance sheet. Why could this be?

C) Many bank assets are illiquid and cannot be sold quickly to meet deposit obligations without substantial loss to the bank.

25) The first run on a British bank since 1866 occurred in August 2007 at which bank?

C) Northern Rock

6) Which of the following statements is TRUE for the U.S.?

C) The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $250,000.

22) The Basel committee

D) continues to be the major forum for cooperation in the regulation of international banking.

19) Capital markets of poor developing countries that liberalized their financial systems to allow private asset trade with foreigners are called

D) emerging markets.

20) U.S. reserve requirements

D) force banks to hold a portion of its assets in a liquid form easily mobilized to meet sudden deposit outflows.

15) The main problem with securitization is that

D) governments are not able to monitor bank assets or to asses a bank's risk to the soundness of the international banking system.

2) Which of the following statements is TRUE?

E) Bank failure is NOT limited to banks that have mismanaged their assets.

16) In the United States, which of the following safety precautions has the government NOT taken to reduce Bank failures?

E) forcibly closing poorly run banks