6. Systemic risk in the financial system Which of the following best defines systemic risk? The degree to which securities can easily be sold without a loss of value The idea that due to the high amounts of business transactions between financial Institutions, financial Instabilities that occur in just a few financial Institutions can very easily spread to others. The idea that the fallure of one Institution is an Isolated event and will not affect other institutions and markets in the financial system The idea that in a financial transaction, one party has more information than the other party Which of the following scenarlos represent(s) a major source of systemic risk? Check all that apply. Origin Savings and Loan Association originate thousands of subprime mortgages that are then sold to commercial banks, securities firms, and other savings Institutions. New Leaf Investment Bank relles heavily on short-term debt to finance their operations and uses their holdings of mortgage-backed securities as collateral. Suddenly the prices of mortgage backed securities plummet, and they can no longer Issue short-term debt to pay off the principal on maturing debt. Smallwood Bank, which is a fictional bank with only 100 deposit accounts among its members, falls one day and is unable to meet its obligations. The Financial Reform Act was passed in 2010 to provide stability to the financial system, and it mandated that financial Institutions granting mortgages must conduct more thorough financial checks on lendees in an attempt to improve on standards that caused the credit crisis of 2008-2009 6. Systemic risk in the financial system Which of the following best defines systemic risk? The degree to which securities can easily be sold without a loss of value The idea that due to the high amounts of business transactions between financial Institutions, financial Instabilities that occur in just a few financial Institutions can very easily spread to others. The idea that the fallure of one Institution is an Isolated event and will not affect other institutions and markets in the financial system The idea that in a financial transaction, one party has more information than the other party Which of the following scenarlos represent(s) a major source of systemic risk? Check all that apply. Origin Savings and Loan Association originate thousands of subprime mortgages that are then sold to commercial banks, securities firms, and other savings Institutions. New Leaf Investment Bank relles heavily on short-term debt to finance their operations and uses their holdings of mortgage-backed securities as collateral. Suddenly the prices of mortgage backed securities plummet, and they can no longer Issue short-term debt to pay off the principal on maturing debt. Smallwood Bank, which is a fictional bank with only 100 deposit accounts among its members, falls one day and is unable to meet its obligations. The Financial Reform Act was passed in 2010 to provide stability to the financial system, and it mandated that financial Institutions granting mortgages must conduct more thorough financial checks on lendees in an attempt to improve on standards that caused the credit crisis of 2008-2009
