ECON 343 FINAL

Question 1

The legislation overturning the Glass-Steagall Act (i.e. part of the Banking Acts of 1933-1935 ) that separated commercial banking from investment banking is

Answer 1

the Gramm-Leach-Bliley Act (Banking Act of 1999).

Question 2

The recent legislation that overturned the prohibition on interstate banking is

Answer 2

the Riegle-Neal Act (Banking Act of 1994)

Question 3

What are the major causal factors of all modern U.S. financial crises?

Answer 3

all of the above

Question 4

Which method of shutting down a bank has the greatest moral hazard?

Answer 4

purchase and assumption

Question 5

Insolvent banks that were allowed to operate in the 1980s by banking authorities were called:

Answer 5

Zombie banks.

Question 6

The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.

Answer 6

principal-agent

Question 7

Which of the following are types of conflict of interest in the financial markets?

Answer 7

All of the answers in this question

Question 8

The national banking ERA was from:

Answer 8

1863-1914.

Question 9

The Federal Board of Governors has_________ members.

Answer 9

7

Question 10

The Federal Open Market Committee has_________ members.

Answer 10

12

Question 11

________ is a process of bundling together smaller loans (like mortgages) into standard debt securities.

Answer 11

Securitization

Question 12

The Federal Open Market Committee (FOMC) is composed of

Answer 12

presidents of 5 Federal Reserve regional banks and the seven Board of Governors.

Question 13

The Basel Accord, an international agreement, requires banks to hold capital based on

Answer 13

risk-weighted assets.

Question 14

With a 20% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is

Answer 14

$80.

Question 15

Because of asymmetric information, the failure of one bank can lead to runs on other banks. This is the

Answer 15

contagion effect.

Question 16

Both ________ and ________ are Federal Reserve assets.

Answer 16

securities; loans to financial institutions

Question 17

The cost of financial crises around the world ranged from approximately ___________ to ___________ as a percent of GDP

Answer 17

3% to 57%

Question 18

The regulatory function of the central bank began with the:

Answer 18

National Banking ERA.

Question 19

Insolvent banks that were allowed to operate in the 1980s by banking authorities were called:

Answer 19

Zombie banks.

Question 20

What do these dates in the U.S. have in common (1819,1837,1857,1873,1884,1893,1907, 1930-1933, 2007-2009)?

Answer 20

Financial panics that caused recessions

Question 21

The legislation overturning the Glass-Steagall Act (i.e. part of the Banking Acts of 1933-1935 ) that separated commercial banking from investment banking is

Answer 21

the Gramm-Leach-Bliley Act (Banking Act of 1999).

Question 22

The legislation that deregulated energy futures markets and credit default swaps was the:

Answer 22

Banking Act of 2000.

Question 23

The legislation that established risk-based deposit insurance and attempted to limit the “too big to fail” rescues by the FED was the:

Answer 23

Banking Act of 1991 (FDICIA).

Question 24

The legislation that began the ERA of Deregulation and phased out Regulation Q was:

Answer 24

Banking Act of 2000.

Question 25

The mark-to-market accounting rule:

Answer 25

is true for all of the answers.

Question 26

Banks evade regulatory requirements through:

Answer 26

all of the answers in this question.

Question 27

The ________ that required separation of commercial and investment banking was repealed in 1999.

Answer 27

the Glass-Steagall Act.

Question 28

Your instructor holds the view that the too big to fail risk:

Answer 28

is true for all of the answers.

Question 29

In the early stages of the 1980s banking crisis, financial institutions were especially harmed by

Answer 29

the severe recession in 1981-82.

Question 30

The National Bank Act of 1863, and subsequent amendments to it

Answer 30

established the Office of the Comptroller of the Currency.

Question 31

The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from

Answer 31

engaging in investment banking, underwriting and dealing of corporate securities.

Question 32

Loophole mining refers to financial innovation designed to

Answer 32

get around regulations.

Question 33

The belief that state bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of

Answer 33

the National Bank Act of 1863.

Question 34

An analysis of the political economy of the savings and loan crisis helps one to understand

Answer 34

why thrift regulators willingly acceded to pressures placed upon them by members of Congress.

Question 35

Which Banking ERA was intended to provide the federal government with a fiscal agent to conduct its official business?

Answer 35

First and Second Bank of the U.S. 1791-1836

Question 36

Which Banking ERA established a system of well regulated nationally chartered banks?

Answer 36

National Banking Era (1863-1913)

Question 37

Which Banking ERA is Ron Paul’s idealized world view?

Answer 37

Free Banking Era (1836-1863)

Question 38

Which banking act provided the money and muscle to end the savings and loan crisis?

Answer 38

FIRREA (1989)

Question 39

Which banking act allowed for full inter-state banking?

Answer 39

Banking Act of 1994

Question 40

Which banking act deregulated over-the-counter derivatives and energy futures trading?

Answer 40

Banking Act of 2000 (Commodity Futures Modernization Act)

Question 41

Which financial crisis was caused by a speculative bubble in high-technology stocks?

Answer 41

Dot-com 1997-2000