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1 | |
There is a tradeoff that a bank faces that can impact its likelihood of failure; this trade off is: |
| | A) | The more competitive the banking environment, the more likely the bank will fail. |
| | B) | The more profitable the bank, the less liquid the bank will be and the more likely it will fail. |
| | C) | The greater the regulation from government the more likely the bank will fail. |
| | D) | The larger the bank in asset size the more likely it will fail. |
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2 | |
What matters most during a bank run is: |
| | A) | The liquidity of the bank. |
| | B) | The solvency of the bank. |
| | C) | The number of depositors |
| | D) | All of the above. |
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3 | |
The federal government is concerned about the health of the banking system for many reasons, the most important of which may be: |
| | A) | Banks are where government bonds are traded. |
| | B) | A significant number of people are employed in the banking industry. |
| | C) | Banks are of great importance in enabling the economy to operate efficiently. |
| | D) | Many people earn the majority of their income from interest on bank deposits. |
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4 | |
It is difficult for depositors to know the true health of banks because: |
| | A) | Regulations prohibit this information from being made public. |
| | B) | Most of the information on bank loans is private and based on sophisticated models. |
| | C) | The financial statements of banks are too difficult for most people to understand. |
| | D) | Banking is competitive and financial records of banks are not divulged to prevent competitor banks from having an advantage. |
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5 | |
The government provides deposit insurance, this insurance protects: |
| | A) | Large corporate deposit accounts, but only the amounts that exceed the $100,000 deductible. |
| | B) | The deposits of banks in their Federal Reserve accounts. |
| | C) | Depositors for up to $100,000 should a bank fail. |
| | D) | The deposits that people have but only for federally chartered banks. |
| | E) | All of the above. |
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6 | |
One of the unique problems that banks face is: |
| | A) | They hold illiquid assets to meet liquid liabilities. |
| | B) | They hold liquid assets to meet illiquid liabilities. |
| | C) | They hold liquid assets to meet liquid liabilities. |
| | D) | Both banks' assets and liabilities are illiquid. |
| | E) | None of the above are problems for banks. |
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7 | |
If the lender of last resort function of the government is to work to minimize a crisis it must be: |
| | A) | Credible, with banks knowing they can get loans quickly. |
| | B) | Used on a limited basis. |
| | C) | Reserved only for those banks which are most deserving. |
| | D) | Very difficult for banks to obtain to minimize moral hazard. |
| | E) | c and d |
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8 | |
With deposit insurance: |
| | A) | Depositors need to involve themselves with the risk taking by bank managers. |
| | B) | The deposits of a bank customer are insured up to the amount of the deposit. |
| | C) | There is a creation of potential moral hazard by bank managers. |
| | D) | All of the above. |
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9 | |
Under the purchase and assumption method of dealing with a failed bank, the FDIC: |
| | A) | Sells the failed bank to the Federal Reserve. |
| | B) | Finds another bank to take over the insolvent bank. |
| | C) | Takes over the day to day management of the bank. |
| | D) | Sells off the profitable loans of the failed bank in an open auction. |
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10 | |
Which of the following statements is incorrect: |
| | A) | The higher the deposit insurance limit the higher the risk of moral hazard. |
| | B) | The lower the deposit insurance limit the lower the risk of moral hazard. |
| | C) | Deposit insurance limits do not impact moral hazard, they impact adverse selection. |
| | D) | Increasing the deposit insurance limits above $100,000 would increase coverage for relatively few depositors. |
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11 | |
The government's too big to fail policy applies to: |
| | A) | A bank run in specific highly populated states which impacts a large percent of the total population. |
| | B) | Banks that have branches in more than two states. |
| | C) | Large corporate payroll accounts held by some banks where many people would lose their income. |
| | D) | Large banks whose failure would certainly start a widespread panic in the financial system. |
| | E) | All of the above. |
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12 | |
You have savings accounts at two separately FDIC insured banks. At one of the banks your account has a balance of $80,000. At the other bank the account balance is $75,000. If both banks fail you will receive: |
| | A) | $100,000. |
| | B) | $155,000. |
| | C) | $80,000. |
| | D) | $75,000. |
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13 | |
One reason that financial regulations restrict the assets that banks can own is to: |
| | A) | Limit the growth rate of banks. |
| | B) | Combat the moral hazard that government safety nets provide. |
| | C) | Prevent banks from being too profitable. |
| | D) | Keep banks from spending lavishly on perks for executives. |
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14 | |
One reason a bank officer may be reluctant to write off a past-due loan is: |
| | A) | It will decrease the banks assets and capital. |
| | B) | It will increase their liabilities. |
| | C) | It will increase their liabilities and assets, requiring more capital to be held. |
| | D) | Bank officers are not reluctant to write-off past due loans. |
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15 | |
The CAMELS ratings are: |
| | A) | Made public monthly to the financial markets so people can judge the relative quality of banks. |
| | B) | Published once a quarter in banking journals issued by the Federal Reserve. |
| | C) | Not made public. |
| | D) | Included in the annual report of publicly owned banks. |
| | E) | Required to be posted in every bank for public view. |
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