Test 3 Flashcards
This phenomenon of spreading panic on the part of depositors in banks is called ____________.
Contagion
Which of the following is one of the two main forms of safety nets our government provides for the banking industry
Serving as Lender of Last Resort
During the financial crisis, the Federal Reserve allowed some non-depository institutions to access its lending facilities. In the absence of new oversight, the access to central bank loans granted by the Fed in the crisis will ______________.
Encourage these borrowers to take greater risks in the future
When the case of an insolvent institution is resolved by the FDIC using the purchase-and-assumption method, which of the following is true?
The FDIC sells the failed bank to a solvent bank at a negative price
Too big to fail actually means ___________________.
Too complex to be shut down or sold in an orderly fashion to another institution
The first screen, put in place to make sure the people who own and run banks are not criminals, is to require _______________.
New banks to obtain a charter
Regulators have long believed that excessive competition within the banking industry facilitates instability and can contribute to problems of insolvency and bank runs. What is it about excessive competition that regulators fear?
Competition leads to higher interest rates on deposits and lower interest rates on loans
Following the consolidation resulting from the financial crisis of 2008, roughly ____% of deposits at US commercial banks were held in only four banks (Bank of America, JP Morgan, Wells Fargo, and Citi)
40%
We know that banks held large amounts of mortgage backed securities before and during the crisis. Assuming these mortgage backed securities had AAA ratings, what benefit did this provide the banks?
It reduced the amount of capital the banks were required to hold
The most important part of a bank examination is _______________________.
The evaluation of past due loans
What is it called when many institutions have exposure to the same specific risk factor?
Common exposure
Which of the following is NOT a part of the Federal Reserve System of the US?
12 regional Federal Reserve Banks
The Board of Governors of the Federal Reserve
The Federal Open Market Committee
The Governing Council of the Federal Reserve
The Governing Council of the Federal Reserve
Which Federal Reserve Regional Bank serves Utah?
San Francisco
Which of the following Regional Banks is the Federal Reserve System’s point of contact with the financial markets?
New York
The chairperson of the Board of Governors of the Federal Reserve serves a ______ term and may be reappointed to more than one term.
4 year
Which of the three branches of the Federal Reserve System performs the following functions?
- Sets the reserve requirement
- Approves/disapproves discount rate recommendations
- Invokes emergency powers to lend to nonbanks when circumstances are deemed “unusual and exigent”
The Board of Governors of the Federal Reserve
The FOMC could control any interest rate, but the rate it has traditionally chose (ignoring the past several years) to control is the ___________?
Fed funds rate
Which of the following are goals that Congress established for the Federal Reserve?
I. Maximum employment
II. Stable prices
III. Moderate long-term interest rates
I, II, and III
The _________________ is the most important member of the Federal Open Market Committee.
The chair of the Board of Governors of the Federal Reserve System
Which of the following contains anecdotal information about current business activity and is published (and made publicly available) about two weeks prior to each upcoming FOMC meeting?
beige book
Which of the following entities in the European System of Central Banks is most similar to the FOMC in the US Federal Reserve System?
Governing council
“The primary objective of the European System of Central Banks shall be ___________________.”
to maintain price stability
Which of the following is considered an asset on the balance sheet of the Federal Reserve?
Loans issued to banks by the Federal Reserve
There are two types of reserves: those that banks are required to hold, called required reserves, and those they hold voluntarily, called ___________ reserves.
Excess
When the Federal Reserve buys or sells securities in financial markets, it engages in _______.
Open market operations
The monetary base = ___________________________.
Currency in the hands of the public + reserves in the banking system
C + R
When the Federal Reserve buys $1 million worth of Treasury bills from a US commercial bank through its open market operations ____________________________.
The reserves portion of its liabilities increases by $1 million
_________________ loans are loans the Fed makes when banks need short-term cash.
Discount
Based on the formula that estimates the money supply as a function of the deposit expansion multiplier and the monetary base, which of the following would increase the money supply?
An increase in the amount of cash that consumers hold relative to their deposits
A decrease in the required reserve ratio
An increase in the amount of excess reserves banks hold relative to deposits
A decrease in the monetary base
A decrease in the required reserve ratio
Total required reserves at US banks are $65,965 million
Total excess reserves at US banks are $1,120,371 million
Total deposit accounts at banks are $1,029,500 million
Cash in the hands of the public is $943,800 million
What is the excess-reserves-to-deposit ratio?
1.0883
ssuming that banks hold no excess reserves and there is no cash in the hands of the non-banking public, what is the money multiplier if the required reserve ratio is 8.5%?
11.765
Assume that a financial crisis leads to the following: banks decide to hold higher excess reserves and the non-banking public decides to carry more cash in their wallets and homes. Which of the following would result?
I. The cash to deposit ratio would increase
II. The excess reserves to deposit ratio would increase
III. The money multiplier would increase
1 and 2
Since the Federal Reserve can only control two of the four variables that determine the money supply, it no longer targets the money supply as policy tool. Instead, for short-run policy, ________________ have become the monetary policy tool of choice for the Federal Reserve.
Interest rates
Between September 2007 and December 2008, the FOMC lowered its target for the federal funds rate 10 times. What was the target fed funds rate range by the end of the 2008?
0.00 - 0.25%
Reserves are injected into the banking system through ____________.
An increase in the size of the Fed’s balance sheet
Which of the following is NOT a CONVENTIONAL policy tool of the Federal Reserve? The target federal funds rate The discount rate The term auction Facility The deposit rate
The term auction Facility
If the Fed wishes to lower the market fed funds rate through open market operations, it will do which of the following? Decrease the supply of reserves Increase the supply of reserves Decrease the demand for reserves Increase the demand for reserves
Increase the supply of reserves
The Federal Reserve allows the market fed funds rate to fluctuate around its target within a corridor or channel. What serves as the ceiling for this corridor?
The discount rate
Seasonal credit is used primarily by _______________ banks in the Midwest.
Small agricultural
________________ is extended on a very short-term basis, usually overnight, to institutions that the Fed’s bank supervisors deem to be sound.
Primary credit
Today, the reserve requirement exists primarily to _________________.
Stabilize the demand for reserves and help the Fed maintain the market fed funds rate close to the target
The European equivalent of the Fed’s target fed funds rate is _______________.
The minimum bid rate
Central bankers use the term ___________________ to refer to instruments that are not directly under their control but lie instead somewhere between their policymaking tools and their objectives.
Intermediate targets
__________________ occurs when the central bank expands the supply of aggregate reserves to the banking system beyond the level that would be needed to maintain its policy rate objective.
Quantitative easing
