ch 14

You have savings accounts at two separately FDIC-insured banks. At one of the banks your account has a balance of $200,000. At the other bank the account balance is $60,000. You find out the banks are going to merge. If this happens and the merged bank fails, you would receive A)$250,000.B)$60,000.C)$260,000.D)$200,000.

A

57) Which one of the following is not involved in regulating savings banks and savings and loans? A) the Federal Reserve System B) the Comptroller of the Currency C) the Federal Deposit Insurance Corporation D) state authorities

A

In principle, banks are like any other business such that new ones could open up and others close every year. It is problematic, however, if banks fail at the same rate as, say, restaurants because banks A)are too big to fail.B)provide access to the payments system.C)generate much of the tax revenue in the community.D)are typically run by prominent community members.

A

17) The Financial Crisis of 2007-08 occurred in three distinct phases which, in the order of occurrence, are A)a solvency crisis, a liquidity crisis, and government intervention.B)a liquidity crisis, a solvency crisis, and a recapitalization of the system.C)government intervention, a liquidity crisis, and a recapitalization of the system.D)a recapitalization of the system, a solvency crisis, and government intervention.

B

47) Which one of the following incentives promotes more risk of moral hazard? A)eliminating protection of financial institutions that are "too-big-to-fail"B)raising the deposit insurance limitC)allowing smaller financial institutions to failD)increasing restrictions on lender-of-last-resort loans

B

Banks serve essential functions in an economy, but their fragility arises from the fact that A) the government controls banks. B) banks provide liquidity to depositors. C) banks must screen and monitor borrowers. D) only healthy banks are immune to depositors' loss of confidence.

B

69) As of 2018, the four largest commercial banks held what share of total deposits at U.S. commercial banks? A)73 percent.B)50 percent.C)36 percent.D)25 percent.

C

90) How was the Dodd-Frank Act of 2010 relatively inefficient? A) It promoted competition among financial institutions that were too big to fail. B) It failed to adopt least-cost mechanisms to make the financial system more resilient. C) It aimed to reduce systemic risk instead of addressing risk in particular areas of the financial system. D) It imposed increased capital requirements to reduce distortions arising from the government safety net and "too-big-to-fail."

C

91) The 2016 elections in the United States A) brought increased political support for Dodd-Frank. B) led to resistance to Dodd-Frank becoming enshrined in law and regulatory changes. C) ushered in practitioners that supported the additional regulations accompanying Dodd-Frank. D) led to more nonbanks being designated as systemically important financial institutions (SIFIs).

C

Bank mergers require government approval because banking officials want to make sure that the A) merger will create a larger bank. B) merged bank will be a monopoly. C) merged bank will be more profitable. D) merger will not result in regulatory competition.

C

Ceteris paribus, which one of the following business practices increases the possibility of a bank run? Banks A) must maintain a positive net worth. B) pay interest on accounts that meet certain requirements. C) promise to satisfy withdrawal requests on a first-come, first-served basis. D) keep cash at the ready in a vault in order to meet depositors' withdrawal requests.

C

The first phase of the Financial Crisis of 2007-08 began when A) the Fed provided support to a solvent, but illiquid, nonbank. B) Bear Stearns collapsed due to toxic assets held in hedge funds. C) the French bank BNP Paribas suspended redemptions from three mutual funds invested in U.S. subprime mortgage debt. D) Lehman Brothers failed after holding on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages.

C

What is the difference between solvency and liquidity for a bank? A)Nothing. These are different words for the same concept.B)Solvency is enough to stop a bank run, but liquidity is not.C)A solvent bank has a positive net worth while a bank with liquidity means that the bank has sufficient reserves and immediately marketable assets to meet withdrawal demands.D)Solvency means that the bank has enough cash on hand to meet withdrawal requests while liquidity means that the bank has access to enough cash to meet withdrawal requests within a specified time period.

C

Which of the following does NOT tend to precede a financial crisis? A)an abrupt downturn in the business cycleB)decreases in liquidityC)a reduction in systemic riskD)too much easy credit

C

15) Deflation causes financial disruption when A)bank balance sheets swell as more borrowing occurs.B)problems of asymmetric information decrease as borrowers' net worth rises.C)borrowers are attracted to new financing with better terms for business and residential loans.D)borrowers have invested in real assets whose value declines while loan payments stay the same.

D

As of January, 2019, the interbank loans that appear on banks' balance sheets represent about what proportion of bank capital? A)33 percentB)10 percentC)3 percentD)less than 1 percent

D

Policy responses were critical in arresting the Financial Crisis of 2007-08 and promoting recovery. The responses used include all of the following except which one? A) macro-prudential stress tests B) elimination of interest rate floors C) use of taxpayer funds to recapitalize the financial system D) introduction of unconventional tools such as quantitative easing

B