ECO 303 – Because of asymmetric information, the failure of one bank can lead to runs on o$ 15.00

Question

1) Because of asymmetric information, the failure of one bank can lead to runs on other banks. This is the

A) too-big-to-fail effect. 

B) moral hazard problem.

C) adverse selection problem. 

D) contagion effect.

2) During the boom years of the 1920s, bank failures were quite

A) uncommon, averaging less than 30 per year. 

B) uncommon, averaging less than 100 per year.

C) common, averaging about 600 per year. 

D) common, averaging about 1000 per year.

3) In the early stages of the 1980s banking crisis, financial institutions were especially harmed by

A) declining interest rates from late 1979 until 1981. 

B) the severe recession in 1981-82.

C) the disinflation from mid 1980 to early 1983. 

D) the increase in energy prices in the early 80s.

4) That several hundred S&Ls were not even examined once in the period January 1984 through June 1986 can be explained by

A) Congress’s unwillingness to allocate the necessary funds to thrift regulators.

B) regulators’ reluctance to find the specific problem thrifts that they knew existed.

C) slower growth in lending meant that less regulation was needed.

D) Congress’s unwillingness to listen to campaign contributors.

5) The ability to use the too-big-to-fail policy was curtailed by the passage of the FDICIA. To use this action today, the FDIC must get approval of a two-thirds majority of both the Board of Governors of the Federal Reserve and the directors of the FDIC and also the approval of the

A) Secretary of the Treasury. 

B) Senate Finance Committee Chairperson.

C) governor of the state in which the failed bank is located. 

D) President of the United States.

6) Competition between banks and other financial intermediaries

A) encourages greater risk taking. 

B) encourages conservative bank management.

C) increases bank profitability. 

D) eliminates the need for government regulation.

7) Regulations that reduced competition between banks included

A) branching restrictions. 

B) bank reserve requirements.

C) the dual system of granting bank charters. 

D) interest-rate ceilings.

8) Regulations designed to provide information to the marketplace so that investors can make informed decisions are called

A) disclosure requirements. 

B) efficient market requirements.

C) asset restrictions. 

D) capital requirements.

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