Eco 316 Week 3 Chapter 14 The Banking Industry

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This document of ECO 316 Week 3 Chapter 14 The Banking Industry consists of: 14.1 Multiple Choice Questions 1) Between 1995 and 2000 2) Compared to the banking systems in other major industrial countries, the banking system in the United States has 3) As of 2006, about how many banks were there in the United States? 4) As of 2006, about what percentage of U.S. banks have less than $100 million in assets? 5) Comparing the U.S. banking system to the systems in other major industrial countries, which of the following statements is true? 6) By 2006, what share of U.S. assets were held by the 10 largest banks in the United States? 7) During the 1980s and 1990s, the number of domestically chartered commercial banks in the United States 8) What is the primary reason for the differences between the U.S. banking system and those in other major industrial countries? 9) When did the charter of the Second Bank of the United States expire? 10) Who were the chief foes of the attempt to establish a national banking system in the early nineteenth century? 11) When was the Free Banking Period? 12) During the Free Banking Period 13) The United States has a dual banking system in the sense that 14) What are federally chartered banks called? 15) National banks are supervised by the 16) From 1863 to 1914, which banks issued bank notes? 17) Why did state banks begin to offer demand deposits? 18) Research on the Free Banking Period has found that 19) Congress introduced deposit insurance in response to 20) A national bank is subject to examination by which of the following? 21) The CAMELS rating system 22) Critics of allowing bank examiners too much discretion argue that doing so results in banks 23) Bank holding companies are supervised by 24) Which of the following is NOT true of membership in the FDIC? 25) Which banks are members of the Federal Reserve System? 26) Federally chartered savings institutions are supervised by the 27) Most federal credit unions are chartered and regulated by the 28) Federal deposit insurance for credit unions is provided by the 29) Banks are exposed to interest rate risk primarily because 30) Interest rate risk 31) Concern for the health of banking institutions has focused on 32) Savers cannot know the true health of banks because 33) A bank run involves 34) The underlying problem that may lead to runs on solvent banks is 35) Contagion refers to 36) The most important reason for federal government concern about the health of the banking industry is that 37) The failure of financially healthy banks is particularly likely to hurt 38) The Federal Reserve System was created in response to 39) The Federal Reserve System was created in 40) The FDIC was created in 41) The McFadden Act of 1927 42) As a result of the McFadden Act, 43) When was the National Banking Period? 44) During a banking panic, a lender of last resort will 45) An important private arrangement to deal with bank runs during the pre-Federal Reserve period was called 46) In the current U.S. economy, who plays the role of lender of last resort? 47) The Fed's role as lender of last resort 48) In 1998, in order to avoid contagion, the Fed 49) Between 1934 and 1981 about how many banks failed per year in the United States? 50) Currently, the FDIC insures deposits up to a limit of 51) What percentage of bank depositors are fully covered by federal deposit insurance? 52) About what percentage of depositors are fully insured under FDIC? 53) If you have $2 million in a CD at a commercial bank that is a member of the FDIC, how much of your funds are uninsured? 54) When the payoff method is used to handle a bank failure, 55) Which of the following is NOT true of the purchase and assumption method of handling a bank failure? 56) Where do the FDIC's funds come from? 57) The introduction of federal deposit insurance resulted in 58) The main reason banks are prohibited from investing deposits in common stocks is that 59) The fact that capital-asset ratios in the banking industry are today at about half their level of 1930 is best explained by the 60) Risk-based capital requirements result in 61) States that restrict banks to having a single branch are said to require 62) Geographic restrictions on banks 63) The best explanation for the persistence of geographic restrictions on banks is that 64) Bank holding companies are 65) The Bank Holding Company Act of 1956 defined a bank as a financial institution that 66) Nonbank offices 67) The Competitive Equality Banking Act of 1987 68) Which of the following statements about branching restrictions on banks is true? 69) As of September 1995, 70) The Glass-Steagall Act of 1933 71) Which of the following statements was NOT true of the Glass-Steagall Act? 72) Universal banking refers to 73) What percentage of commercial bank deposits are held by bank holding companies? 74) For much of the post-World War II period, Japanese firms have depended greatly on bank loans because 75) In the Japanese economy, the link between keiretsu, or industry groups, and their main banks 76) For Japanese firms, since 1980 the share of external funds raised by bank borrowing has 77) A distinguishing feature of German banking, compared with U.S. and Japanese banking, is 78) One consequence of the close relationship between banks and industry in Germany is that 14.2 Essay Questions 1) Suppose a group of investors decide they want to establish a bank. How would they go about doing so? 2) Why was the proposal by the FDIC to increase coverage of insured deposits to $200,000 greeted skeptically by most economists? 3) Why have regulators in recent years increasingly focused attention on assessments of banks' internal risk management? Why might a bank's current balance sheet not provide sufficient information on a bank's risk position? 4) Briefly discuss the trend in recent years with respect to the relative importance for banks' earnings of traditional banking activities versus off-balance-sheet activities. Has this trend been unique to the United States? What are the consequences of this trend for bank regulation?

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Economics - General Economics Week 1 Should You Invest Short Term? - Week1 DQ1 ECO316 What are the implications of a U.S. policy to “bail out” firms and heavily subsidize the economy? How could such a policy create inflation and higher interest rates? If you have cash available should you wait until interest rates rise? Treasury Inflation Protection Bonds - Week1 DQ2 ECO316 Week 2 New Product, Will I Be Rich? -Week2 DQ1 ECO316 My company just came out with a new product? Should I buy a bunch of company stock and get rich? What are the pros and cons of such an investment? Mutual Fund Regulation - Week2 DQ2 ECO316 From Chapter 12, complete problem 13 (page 276): Describe how mutual funds provide services related to risk sharing and liquidity. Distinguish a mutual fund from a bank. What do the differences you highlighted imply about the need for regulation of mutual funds as opposed to banks? Week 3 Exchange Rate Risk - Week3 DQ1 ECO316 From Chapter 16, complete problem 13 (page 382): Relate the problem of exchange rate risk in international banking to interest rate risk in domestic banking. On the basis of your understanding of interest rate risk, suggest strategies for managing exchange rate risk in international banking. Should I Expect a Bail Out? - Week3 DQ2 ECO316 From Chapter 15, complete problem 19 (page 363): Suppose that you manage a small SL that has a net worth of –$50 million. You fear that within two years, regulators will discover that your firm is insolvent and will shut you down. You have two possible investment strategies: (a) continue to operate as you have been, offering market interest rates on CDs to finance mortgage loans, or (b) offer higher than market interest rates on CDs and use the increased funds to speculate in junk bonds and real estate. Your analysis tells you that strategy (a) has a 10% chance of losing $10 million and a 90% chance of gaining $20 million, with an expected return of $17 million. Strategy (b) has an 80% chance of losing $50 million and a 20% chance of gaining $75 million, with an expected return of –$25 million. What strategy should you follow? Why? What are the consequences of your choice? What should a regulator do in this situation? How might your behavior change if you expect a government bail out? Impacts on Liquidity - Week 3 Assignment - ECO316 From Chapter 18, complete the case on pages 434-435. Your two to three page response should focus on selecting the most relevant factors and organizing them in a coherent fashion. Federal Reserve System and Politics - Week4 DQ1 ECO316 From Chapter 19, complete problem 12 (page 454): Evaluate: The Federal Reserve System is independent of the political process in the United States. Fed Impact on the Dollar - Week4 DQ2 ECO316 From Chapter 21 complete problem 14 (page 501): If the Fed wants to decrease the value of the dollar on foreign-exchange markets, what should it do? What should it do if it wants to increase the foreign-exchange value of the dollar? Week 5 Money Growth Rates and Recessions - Week 5 DQ1 ECO316 From Chapter 26, complete problem 14 (page 632): Suppose that you observed a substantial decline in the money growth rate six months before the start of every recession. Would that be enough to convince you that money affects output? Why or why not? Credit Crunch - Week 5 DQ2 ECO316 From Chapter 27, complete problem 15 (page 653): You have been assigned to determine whether the economy is experiencing a credit crunch. What patterns in movements in the federal funds rate, the volume of bank lending, and the volume of short-term lending in financial markets will you look for? Why? Week 5 - Final Paper - ECO316 Analyze the major problems that countries face in developing a balance between mortgage rates and an expansionary economy. Utilize the Chapter 27 case on pages 654-655, as well as outside resources, as a basis for developing your analysis.

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It is important to choose your classes wisely. Try to avoid taking a lot of classes that you are going to have to devote a lot of time and attention to all at once. Instead, alternate these harder courses with easier ones to make your semester and college experience a much easier one.