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BANK/ECON > EXAM 3 Terms > Flashcards

EXAM 3 Terms Flashcards

1
Q

Who stated that the financial market has a “Lemon” problem, and that low quality can sell higher, while high quality can sell lower.

A

George Akerlof

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2
Q

When firms take short-term deposits and use them to make long-term loans.

A

Asset transformation

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3
Q

What is the Principal-Agent problem?

A

Principle (Stockholders) have less information, Agents (Managers) have more information.

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4
Q

Firms that pool resources of their partners and use the funds to help budding entrepreneurs start a business.

A

Venture Capital Firms

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5
Q

What are the 4 signs of financial repression?

A
  1. Poor system of legal rights
  2. Poor legal system
  3. Weak accounting standards
  4. Government interventions through credit programs
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6
Q

What are the 6 general principles of bank management?

A
  1. Liquidity management
  2. Asset management
  3. Liability management
  4. Capital adequacy management
  5. Credit risk
  6. Interest-rate risk
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7
Q

Required fraction of deposits banks must hold.

A

Required reserves

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8
Q

Percentage of all deposits (only) that must be held as reserves.

A

Required reserve ratio

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9
Q

Required reserve ratio falls below the required percentage, which can lead to slower credit growth.

A

Shortfall

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10
Q

Checkable deposits have ___ as a source of bank funds, where securities and loan markets have _____.

A
  1. Decreased

2. Increased

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11
Q

___________ helps prevent bank failure, which leads to it being regulated.

A

Bank capital

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12
Q

Bank capital is a _______ for bad loans or non-paying assets.

A

Cushion

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13
Q

Banks want to hold as ______ of capital as possible. Leverage boosts _____.

A
  1. Little

2. Profits

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14
Q

Failure of government functions, which leads to government agencies becoming subservant of their industries.

A

Regulatory capture

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15
Q

Measures the gap for several maturities subintervals.

A

Maturity bucked approach

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16
Q

The phenomenon of spreading panic on the part of depositors.

A

Contagion

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17
Q

Bank failures averaged ____ per year in the 1920s.

A

600

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18
Q

(Method) The FDIC allows banks to fail, paying back depositors up to $250,000.

A

Payoff method

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19
Q

(Method) The FDIC reorganizes the bank, finds a partner that takes over the risk and sweetens the pot by buying the partner’s weaker loans.

A

Purchase and assumption method

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20
Q

When banks shop for the most lenient regulator.

A

Regulatory arbitrage

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21
Q

Bank leverage is considered well-capitalized at ____%, whereas ___% and lower triggers increased regulatory restrictions.

A
  1. 5

2. 3

22
Q

Similar to screening, regulators restricting risky asset holdings.

A

Chartering

23
Q

The bank must file periodic (usually quarterly) call reports, showing financial information

A

Supervision

24
Q

Bank regulatory agencies assess bank financial conditions once a year.

A

Examination

25
Q

What are the terms for CAMELS?

A 
Capital adequacy
Asset quality
Management
Earnings
Liquidity
Sensitivity to risk
26
Q

Basel 2 accord and SEC emphasis ______ requirements.

A

Disclosure

27
Q

Safety and soundness of individual financial institutions.

A

Microprudential supervision

28
Q

Safety and soundness of the financial system in aggregate.

A

Macroprudential supervision

29
Q

FIRREA and FDICIA provided ______ to savings and loans/commercial banks.

A

Bailouts

30
Q

Bailouts costed $______ billion, making up %__ of GDP.

A
  1. 150

2. 3

31
Q

The most comprehensive financial reform since the Great Depression.

A

Dodd-Frank Wall Street Reform

32
Q

Limits banks on trading with their own money, and can only own small percentages of hedge and private equity firms.

A

Volcker rule

33
Q

During Glass-Steagall, ____ allowed commercial banks to underwrite securities as long as revenue didn’t exceed the threshold.

A

Section 20

34
Q

What legislation abolished Glass-Steagall, allowing security firms and insurance companies to purchase banks, allowing the banks to underwrite securities and insurance?

A

Gramm-Leach-Bliley Services Modernization Act of 1999

35
Q

Special subsidiaries engaged primarily in international banking.

A

Edge Act corporation

36
Q

Approved by Fed within the U.S.; no reserve requirements or restrictions on payments.

A

IBF

37
Q

Federally charted banks are supervised by the _____.

A

Office of the Comptroller of the Currency

38
Q

Bank lending has been funded via the securities market instead of depositors.

A

Shadow Banking system

39
Q

Financial institutes research and develop new products and services to meet customer needs.

A

Financial engineering

40
Q

Seller agrees to provide a certain commodity to the buyer at an agreed price and time.

A

Futures contract

41
Q

Bonds that were above Baa ratings eventually felling below.

A

Fallen Angels

42
Q

Fastest growing money market instrument.

A

Commercial paper

43
Q

To transform otherwise illiquid financial assets into marketable capital market securities.

A

Securitization

44
Q

Process of avoiding regulations.

A

Loophole mining

45
Q

Any balances above a certain amount in a firm checking account at the end of a business day are “swept out” and invested into overnight securities that pay interest. (not subject to reserve requirements)

A

Sweep account

46
Q

Legislation that constituted strong anticompetitive forces in the commercial banking industry, allowing small banks to survive.

A

McFadden Act

47
Q

A corporation that owns several different companies; can own a controlling interest in numerous banks without the issuing branching.

A

Bank holding company

48
Q

ATMs avoid ______ of branching.

A

Restrictions

49
Q

The term for bank holding companies that have begun to rival the money center banks in size but whose headquarters are not in one of the money center cities.

A

Superregional banks

50
Q

The ability to use one resource to provide many different products and services.

A

Economies of scope

BANK/ECON (5 decks)

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