Chapter 14 – Regulating the Financial System
60. Which of the following regulates commercial banks as well as savings banks and savings
and loans?
D. The Internal Revenue Service
61. Credit Unions are regulated by a combination of agencies which includes:
D. The Office of the Comptroller of the Currency
62. Banks can effectively choose their regulators by deciding whether to:
A. Be a private or public corporation
Chapter 14 – Regulating the Financial System
63. The fact that banks can be either nationally or state chartered creates:
A. Situations where some banks go unregulated
64. One negative consequence of regulatory competition is:
A. It is expensive
65. You hold an FDIC insured savings account at your neighborhood bank jointly with your
father. Each of you has contributed equally into the account. The current balance in the
account is $120,000. If the bank fails each of you will receive:
D. $120,000
Chapter 14 – Regulating the Financial System
66. You hold an FDIC insured savings account at your neighborhood bank. Your current
balance is $275,000. If the bank fails you will receive:
D. $125,000
67. You have two savings accounts at an FDIC insured bank. You have $225,000 in one
account and $40,000 in the other. If the bank fails, you will receive:
A. $225,000
68. 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. If
both banks fail, you will receive:
A. $250,000
Chapter 14 – Regulating the Financial System
69. 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 you are concerned about the possibility of the
new bank failing, you should:
A. Do nothing; you are still insured up $250,000 per account
70. A long-standing goal of financial regulators has been to:
D. Discourage small rural banks
71. Following the consolidation that resulted from the 2007-2009 financial crisis in the US,
the 4 largest commercial banks share of total deposits was:
A. 75%
Chapter 14 – Regulating the Financial System
72. Bank mergers require government approval because banking officials want to make sure
that:
A. The merger will create a larger bank
73. Which of the following statements is most correct?
D. Financial regulators prefer banks to have monopoly power in their geographic markets
74. By setting fixed rules, regulators create the possibility that those being regulated will:
D. Clearly understand the rules and follow them
Chapter 14 – Regulating the Financial System
75. Banking regulations prevent banks from:
A. Holding more than 10 percent of their assets in common stock of companies
76. One reason that financial regulations restrict the assets that banks can own is to:
D. Keep banks from spending lavishly on perks for executives
77. Financial regulators set capital requirements for banks. One characteristic about these
requirements is:
D. The amount of capital required is inverse to the amount of assets the bank owns
Chapter 14 – Regulating the Financial System
D. A set of guidelines applied only to international banks operating with U.S. boundaries
79. Which of the following is not a positive effect of the Basel Accord?
A. It forced regulators to change the way they thought about bank capital
80. Which of the following is not a pillar of the new (1998) Basel Accord?
A. A revised set of minimum capital requirements
Chapter 14 – Regulating the Financial System
81. Banks are required to disclose certain information. This disclosure is done for all of the
following reasons except:
A. To enable regulators to more easily assess the financial condition of banks
82. The supervision of banks includes:
D. Requiring banks to file monthly reports on their revenues, expenses and profits
83. Prior to the financial crisis of 2007-2009 banks did all but which of the following to bulk
up their profit:
A. bought or sponsored hedge funds
Chapter 14 – Regulating the Financial System
84. One reason a bank’s officer may be reluctant to write off a past-due loan is that it will:
D. Mean the bank will have to answer to an additional regulator
85. The acronym CAMELS, which is the criteria used by supervisors to evaluate the health of
banks, includes the following, except:
D. Earnings
86. The CAMELS ratings are:
A. Made public monthly to the financial markets so people can judge the relative quality of
banks
Chapter 14 – Regulating the Financial System
87. 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:
D. Earnings
88. Regulators and supervisors of banks are challenged by all of the following, except:
A. Globalization of financial services
89. In today’s world, the goal of financial stability means:
Chapter 14 – Regulating the Financial System
90. The financial crisis of 2007-2009 has made which of the following regulatory goals a top
priority for government:
A. disclosure of accounting information
Short Answer Questions
91. The text points out that there is an inverse relationship between the fiscal cost of a bank
crisis and real GDP growth. What are some of the reason that can explain this inverse
relationship?
Chapter 14 – Regulating the Financial System
92. Why might there be a trade-off between a bank’s profitability and its safety?
93. Why do bank runs usually have people rushing to their bank instead of waiting for the
lines to taper off so they do not have to wait so long?
94. What is the difference between a bank that is insolvent and one that is illiquid?
Chapter 14 – Regulating the Financial System
95. Why is it that a run on a single bank can turn into a widespread financial panic, or what
the text identified as contagion?
96. How do banks potentially make economic downturns more severe and how do economic
downturns contribute to the increased failure of banks?
97. Why is the financial industry inherently more unstable than most other industries?
Chapter 14 – Regulating the Financial System
98. Briefly describe the combination of strategies used by government officials to protect
investors and ensure the stability of the financial system.
99. Explain why depository institutions receive a disproportionate amount of attention from
government regulators (compared to most other industries).