1. Examine the rationale for financial regulation and prudential supervision. How can the existence of asymmetric information provide a rationale for government regulation of banks?

2. Bank failure may not be limited to banks that have mismanaged their assets. Explain why. Describe the regulatory safety net that has been set up in the United States and other countries in order to reduce the risk of bank failure. Explain the issues involved with the Fed acting as a Lender of Last Resort. How might limiting the too-big-to-fail policy help reduce the risk of a future banking crisis?

3. After the Latin American debt crisis began in 1982, U.S. bank regulators imposed tighter supervisory restrictions on the lending policies of American banks and their subsidiaries. Over the 1980s, the share of U.S. banks in banking activity in London declined. Can you suggest a connection between these two developments? What are some difficulties in regulating offshore (international) banking?

4. Examine the role of the Basel Committee in the standard-setting process in international banking. What are the Committees main regulatory accomplishments? What are the implications of the reliance of the Basel II capital adequacy framework on credit rating agencies assessments for the effectiveness, legitimacy, and fairness of this framework?

5. Why are regulators concerned with the risks posed by interdependent securities and derivative markets? What are the limitations in the global-level regulatory capacity of the International Organization of Securities Commissions trying to improve the harmonization of securities regulations at the international level?