19 . If the government did not offer the too-big-to-fail safety net:

Multiple Choice

• large banks would be more disciplined by the potential loss of large corporate accounts.
• the moral hazard problem of insuring large banks would increase.
• the moral hazard problem of insuring large banks would not be affected.
• the FDIC deposit insurance limits would have to be raised.

20 . Governments supervise banks mainly to do each of the following, except:

Multiple Choice

• reduce the potential cost to taxpayers of bank failures.
• be sure the banks are following the regulations set out by banking laws.
• reduce the moral hazard risk.
• eliminate all risk faced by investors.

21 . The fact that banks can be either nationally or state chartered creates:

Multiple Choice

• situations where some banks go unregulated.
• situations where banks operating in more than one state can escape regulation.
• regulatory competition.
• banks being simultaneously regulated by more than one agency.

23 . Banks are required to disclose certain information. This disclosure is done for all of the following reasons except:

Multiple Choice

• to enable regulators to more easily assess the financial condition of banks.
• to allow financial market participants to penalize banks that carry additional risk.
• to allow customers to more easily compare prices for services offered by banks.
• create uniform prices for standard bank services.

24 . One reason a bank's officer may be reluctant to write off a past-due loan is that it will:

Multiple Choice

• increase the bank's liabilities.
• decrease the bank's assets and capital.
• increase the bank's liabilities and assets, requiring more capital to be held.
• make the bank's accounts less transparent.

25 . A bank supervisor examines the bank's portfolio of loans to see if the loans are being repaid in a timely manner. In terms of the acronym CAMELS, this would be part of rating the bank's:

Multiple Choice

• asset quality.
• losses.
• management.
• earnings.

26 . Which of the following is not a goal of the Dodd-Frank Act of 2010?

Multiple Choice

• To anticipate and prevent financial crises by limiting systemic risk
• To end "too big to fail"
• To promote competition
• To reduce moral hazard

27 . The U.S. has many banks because:

Multiple Choice

• small banks are more profitable than large banks.
• many states outlawed bank branching.
• the Great Depression caused the failure of the large banks, leaving many small banks.
• the Glass-Steagall Act forced the splitting up of large banks.

28 . The sharp reduction in the number of banks that has occurred since the mid-1980s has been due primarily to:

Multiple Choice

• bank failures from increased competition.
• bank mergers.
• the closing of banks by federal regulators.
• the revoking of state bank charters.

33 . If depositors lose faith in a bank, the severity of bank runs can be compounded by the:

Multiple Choice

• first-come, first-served nature of bank withdrawals.
• policy that large depositors can withdraw their deposits before smaller depositors can.
• existence of deposit insurance.
• large amounts of vault cash

35 . Bank runs:

Multiple Choice

• can infect both healthy and insolvent banks.
• infect only healthy banks.
• infect only insolvent banks.
• only occur in transition economies.

37 . One reason customers do not care about the quality of their bank's assets is:

Multiple Choice

• most people cannot distinguish an asset from a liability.
• the quality of a bank's assets changes almost daily.
• they assume the bank only has high quality assets.
• with deposit insurance, there isn't any real reason to care; their deposits are protected even if the bank fails.

38 . One negative consequence of regulatory competition is:

Multiple Choice

• it is expensive.
• financial institutions are over regulated at a cost to customers.
• financial institutions often seek out the most lenient regulator.
• it minimizes competition.

39 . One lesson learned from the bank panics of the early 1930's is:

Multiple Choice

• The lender of last resort functionguarantees that bank panics are a thing of the past
• The mere existence of a lender of last resort will not keep the financial system from collapsing
• Only the U.S. Treasury can be a true lender of last resort
• The financial system will collapse without a lender of last resort