EXAM 3 Terms Flashcards
Who stated that the financial market has a “Lemon” problem, and that low quality can sell higher, while high quality can sell lower.
George Akerlof
When firms take short-term deposits and use them to make long-term loans.
Asset transformation
What is the Principal-Agent problem?
Principle (Stockholders) have less information, Agents (Managers) have more information.
Firms that pool resources of their partners and use the funds to help budding entrepreneurs start a business.
Venture Capital Firms
What are the 4 signs of financial repression?
- Poor system of legal rights
- Poor legal system
- Weak accounting standards
- Government interventions through credit programs
What are the 6 general principles of bank management?
- Liquidity management
- Asset management
- Liability management
- Capital adequacy management
- Credit risk
- Interest-rate risk
Required fraction of deposits banks must hold.
Required reserves
Percentage of all deposits (only) that must be held as reserves.
Required reserve ratio
Required reserve ratio falls below the required percentage, which can lead to slower credit growth.
Shortfall
Checkable deposits have ___ as a source of bank funds, where securities and loan markets have _____.
- Decreased
2. Increased
___________ helps prevent bank failure, which leads to it being regulated.
Bank capital
Bank capital is a _______ for bad loans or non-paying assets.
Cushion
Banks want to hold as ______ of capital as possible. Leverage boosts _____.
- Little
2. Profits
Failure of government functions, which leads to government agencies becoming subservant of their industries.
Regulatory capture
Measures the gap for several maturities subintervals.
Maturity bucked approach
The phenomenon of spreading panic on the part of depositors.
Contagion
Bank failures averaged ____ per year in the 1920s.
600
(Method) The FDIC allows banks to fail, paying back depositors up to $250,000.
Payoff method
(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.
Purchase and assumption method
When banks shop for the most lenient regulator.
Regulatory arbitrage
Bank leverage is considered well-capitalized at ____%, whereas ___% and lower triggers increased regulatory restrictions.
- 5
2. 3
Similar to screening, regulators restricting risky asset holdings.
Chartering
The bank must file periodic (usually quarterly) call reports, showing financial information
Supervision
Bank regulatory agencies assess bank financial conditions once a year.
Examination
What are the terms for CAMELS?
Capital adequacy Asset quality Management Earnings Liquidity Sensitivity to risk
Basel 2 accord and SEC emphasis ______ requirements.
Disclosure
Safety and soundness of individual financial institutions.
Microprudential supervision
Safety and soundness of the financial system in aggregate.
Macroprudential supervision
FIRREA and FDICIA provided ______ to savings and loans/commercial banks.
Bailouts
Bailouts costed $______ billion, making up %__ of GDP.
- 150
2. 3
The most comprehensive financial reform since the Great Depression.
Dodd-Frank Wall Street Reform
Limits banks on trading with their own money, and can only own small percentages of hedge and private equity firms.
Volcker rule
During Glass-Steagall, ____ allowed commercial banks to underwrite securities as long as revenue didn’t exceed the threshold.
Section 20
What legislation abolished Glass-Steagall, allowing security firms and insurance companies to purchase banks, allowing the banks to underwrite securities and insurance?
Gramm-Leach-Bliley Services Modernization Act of 1999
Special subsidiaries engaged primarily in international banking.
Edge Act corporation
Approved by Fed within the U.S.; no reserve requirements or restrictions on payments.
IBF
Federally charted banks are supervised by the _____.
Office of the Comptroller of the Currency
Bank lending has been funded via the securities market instead of depositors.
Shadow Banking system
Financial institutes research and develop new products and services to meet customer needs.
Financial engineering
Seller agrees to provide a certain commodity to the buyer at an agreed price and time.
Futures contract
Bonds that were above Baa ratings eventually felling below.
Fallen Angels
Fastest growing money market instrument.
Commercial paper
To transform otherwise illiquid financial assets into marketable capital market securities.
Securitization
Process of avoiding regulations.
Loophole mining
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)
Sweep account
Legislation that constituted strong anticompetitive forces in the commercial banking industry, allowing small banks to survive.
McFadden Act
A corporation that owns several different companies; can own a controlling interest in numerous banks without the issuing branching.
Bank holding company
ATMs avoid ______ of branching.
Restrictions
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.
Superregional banks
The ability to use one resource to provide many different products and services.
Economies of scope
