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Quiz 2
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1
Banks that are more liquid are generally:
A)also more profitable than less liquid banks.
B)as profitable as less liquid banks.
C)less profitable than less liquid banks.
D)more likely to fail.
2
The main factor in whether a bank can survive a bank run during a bank panic is the bank's:
A)profitability.
B)liquidity.
C)solvency.
D)None of the above is correct.
3
A bank is illiquid if:
A)it is insolvent.
B)it has insufficient liquid assets to cover deposit outflows.
C)its bank capital is less than the required level.
D)All of the above are correct.
4
Government officials have generally taken an active role in attempting to prevent widespread bank failures primarily because of concern over:
A)the loss of jobs by bank employees when banks fail.
B)contagion effects.
C)the loss of profits by bank owners.
D)the increase in inflation that inevitably results from widespread bank failures.
5
Which of the following has historically been a factor in causing a bank panic?
A)an economic recession
B)deflation
C)declines in bank capital due to rising loan defaults
D)All of the above are correct.
6
The government regulates and protects the banking system more heavily than most other industries because:
A)small investors in the banking industry have imperfect information concerning the soundness of banks.
B)mergers of large banks could result in a reduction in competition and harm both depositors and borrowers.
C)banks are inherently unstable since poor decisions can result in a very rapid failure of a bank.
D)All of the above are correct.
E)None of the above is correct.
7
Banks face risks that differ from those faced by nondepository institutions in that banks primarily hold:
A)liquid assets and liquid liabilities.
B)illiquid assets and illiquid liabilities.
C)liquid assets and illiquid liabilities.
D)illiquid assets and liquid liabilities.
8
The rationale for the "lender of last resort" function of central banks is to:
A)provide low-income households with access to mortgage loans.
B)increase bank lending to firms that are at risk of bankruptcy.
C)reduce the likelihood of the contagion effect.
D)encourage banks to hold more reserves.
9
The FDIC provides insurance that covers:
A)only deposits in savings banks.
B)only deposits in commercial banks.
C)deposits in nationally chartered banks, but not deposits in state-chartered banks.
D)deposits up to $100,000 in checking and savings accounts at most U.S. banks.
10
The existence of deposit insurance:
A)reduces the moral hazard problem for bank managers.
B)increases the moral hazard problem for bank managers.
C)has no effect on the moral hazard problem for bank managers.
D)increases the moral hazard problem for managers in small banks but reduces it for managers in large banks.
11
If the FDIC uses the payoff method to resolve the insolvency of a bank:
A)a merger is arranged with another bank that is "paid off" by the FDIC to take over the failed bank.
B)the bank continues operations under FDIC supervision.
C)bribes are paid to the appropriate Senators to allow the bank to continue operations.
D)depositors will lose any balances over $100,000 on deposit at the bank.
12
Under the too-big-too-fail policy, the nation's largest banks have:
A)more incentive to avoid making risky loans than do small banks.
B)more incentive to make risky loans than do small banks.
C)an incentive to sell off some of their assets to become smaller.
D)None of the above is correct.
13
Bank regulations designed to reduce the risk of bank failure include:
A)the use of risk-based capital requirements.
B)restrictions on asset holdings.
C)Both of the above are correct.
D)None of the above is correct.
14
Regulatory competition:
A)reduces the incentives for regulators to innovate.
B)may result in banks choosing to be regulated by the agencies that impose the least stringent requirements on them.
C)Both of the above are correct.
D)None of the above is correct.
15
Increased competition among banks:
A)raises the interest rate that depositors receive on their deposits.
B)raises the interest rates that borrowers pay on their loans.
C)tends to reduce the quality of the services that banks provide.
D)encourages banks to take on less risk.





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