ECO 316 Week 3 Chapter 15 Banking Regulation Crisis and Response

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15.1 Multiple Choice Questions
1) Which of the following factors contributed to the problems that banks began to face during the 1960s and 1970s?
2) The first stage in the regulatory process is
3) The second stage in the regulatory process is
4) The third stage in the regulatory process is
5) The fourth stage in the regulatory process is
6) The regulatory response stage of the regulatory process consists of all of the following EXCEPT
7) The primary motive for financial innovation during the regulatory process is
8) Government regulation of banks in the United States
9) The usual response of the banking system to government regulations is
10) Congress created the Federal Reserve System
11) For a lender of last resort to be effective
12) The creation of a lender of last resort in the United States
13) The first crucial test for the Fed as a lender of last resort occurred
14) As a result of the bank failures of the early 1930s
15) Many economists believe
16) Because of the bank failures of the early 1930s, many small and medium-sized businesses were
17) Which of the following did NOT significantly exacerbate the banking crisis of the early 1930s?
18) In 1931 the Fed increased the interest rate it charged on loans to banks
19) The weakness of the Fed's actions during the banking crisis of the early 1930s resulted in
20) Which of the following did NOT occur as a result of the weakness of the Fed's actions during the banking crisis of the early 1930s?
21) Which of the following statements about the Penn Central Railroad crisis is NOT true?
22) The Franklin National Bank Crisis had its greatest impact on the market for
23) What is the payments system?
24) Which of the following organizations has check clearing as its main role?
25) What is the Fedwire used for?
26) The crisis involving the Hunt brothers had its greatest impact on the market for
27) In late 1998 the Fed averted a possible financial panic by
28) Congress has attempted to reduce competition among banks in order to
29) Anticompetitive restrictions on banks generally result in
30) An important consequence of regulations that reduce competition among banks is
31) Regulation Q
32) Regulation Q was intended to
33) The market for short-term credit exists in large part to
34) Historically, commercial banks have dominated the short-term credit market by
35) When households and businesses substitute Treasury bills, commercial paper, and repurchase agreements for short-term bank deposits in their portfolios, they are
36) In 1971 money market mutual funds were introduced as an alternative to
37) The popularity of money market mutual funds during the 1970s is best explained by
38) In 2006 the assets of money market mutual funds were approximately
39) The development of money market mutual funds also aided large, well-established firms in raising funds by
40) By 2006, total lending in the commercial paper market accounted for about what percentage of short-term business financing?
41) During the 1980s banks lost loan business to
42) The loss of business to the commercial paper market that banks have suffered has been particularly damaging because most of the lost business was from
43) Disintermediation refers to the
44) Large commercial banks responded to the Credit Crunch of 1966 by
45) Which sector of the economy was hurt the worst by the Credit Crunch of 1966?
46) A credit crunch refers to a
47) Banks responded to their loss of borrowers to the commercial paper market by offering
48) Negotiable certificates of deposit were developed in order to
49) Negotiable certificates of deposit differ from demand deposits in that they
50) Certificates of deposit differ from demand deposits in that they
51) Negotiable order of withdrawal accounts
52) NOW accounts were developed in order to
53) In an overnight Eurodollar transaction
54) In a repurchase agreement, a corporation
55) An ATS account
56) Which of the following is NOT true of the Depository Institution Deregulation and Monetary Control Act of 1980?
57) When did Regulation Q finally disappear?
58) What was the main reason Congress passed the Garn-St. Germain Act of 1982?
59) Which of the following statements concerning money market deposit accounts is NOT true?
60) The Garn-St. Germain Act aided savings institutions by
61) The key to the interest rate risk faced by thrifts was
62) The thrift industry prospered during the period from the 1930s to the 1960s because
63) The thrift industry began to face serious problems following the rise in interest rates in
64) The 1981-1982 recession hurt thrifts by
65) A rise in interest rates hurts thrifts because it
66) During the early 1980s, Congress relaxed restrictions on the asset holdings of S&Ls by allowing them to hold all of the following EXCEPT
67) During the early- to mid-1980s, thrifts in which parts of the country were particularly hard hit?
68) The development of brokered deposits increased the moral hazard problem of deposit insurance by
69) During the early 1980s, regulators kept many insolvent or nearly insolvent thrifts from being closed by
70) Adjustable-rate mortgages do not fully eliminate interest-rate risk for all of the following reasons EXCEPT
71) The incident in which an S&L entrepreneur contributed about $1.3 million to the campaigns of five U.S. senators in return for their assistance in getting FHLBB Chairman Edwin Gray to deal lightly with the problems of Lincoln Savings and Loan is known as the
72) Which of the following was NOT a provision of FIRREA?
73) In 1995, the FDIC deposit insurance premiums for most banks were
74) Under FIRREA what are the capital requirements for S&Ls?
75) The most important loss to the economy during the 1980s from the thrift crisis was
76) What did the Congressional Budget Office estimate the cost of the S&L debacle to be in 1992 dollars?
77) Which of the following statements is accurate?
78) Which of the following statements concerning the problems of commercial banks during the 1980s is NOT true?
79) The lower the amount of deposits covered by insurance,
80) Which of the following statements concerning federal deposit insurance is NOT true?
81) Under FDICIA, who would have to approve in order for the too-big-to-fail policy to be implemented?
82) Which of the following countries has not faced a banking crisis since 1990?
83) Under narrow banking,
84) Narrow banking is seen by some economists as an answer to the problem of
85) The Federal Deposit Insurance Corporation Improvement Act of 1991
86) The prompt corrective action rule implemented by the FDICIA directed the FDIC to
87) The greatest problem with bank capital requirements as they currently exist is that they
88) The McCarran-Ferguson Act of 1945
89) All of the following agencies share bank supervision EXCEPT
15.2 Essay Questions
1) Why did the federal government until fairly recently put restrictions on interstate banking? Did those restrictions increase the stability of the banking system?
2) In what sense had the structure of S&Ls become outmoded by the 1970s? In what sense were the S&Ls uniquely vulnerable to an increase in inflation?
3) Why, if the Federal Reserve was set up as a lender of last resort for the banking system, did it perform effectively after the stock market crash of 1929, but poorly during the banking panics that began in late 1930?
4) Why does the Pension Benefit Guaranty Corporation insure defined benefit pension plans, but not defined contribution pension plans? Has the existence of PBGC increased or decreased moral hazard problems in the financial system?

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