Chapter 19 Flashcards
1
Q
what are the main causes of FI insolvency
A
-rise in interest rates
-collapse in oil, real estate and commodity prices
-increased competition
2
Q
what is a cause of depository fund insolvency
A
moral hazard: taking excessive or unnecessary risk because you know youre covered (bank takes on more risk knowing deposits are insured)
3
Q
who is lender of last resort
A
central bank
4
Q
explain how CDIC moved to risk based premiums instead of paying all the same premium
A
CDIC now charges premium based on how risky bank is (riskier banks pay a higher prem, look at their loans, loss on defaults)
5
Q
what is the role of CDIC
A
insurance for deposits
