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Money, Banking, and Financial Markets Practice Test: Financial Regulation
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Financial regulation is a type of supervision that places certain requirements, guidelines, and restrictions on financial institutions. The goal of financial regulation is to maintain the financial system's integrity and stability. The objectives of financial regulators are usually to: Maintain market confidence, Contribute to the financial system's stability, Protect consumers, Reduce financial crime, and Regulate foreign participation.  Financial regulation is one of the three legal categories that make up financial law, along with case law and market practices. These regulations are... Show more
Money, Banking, and Financial Markets Practice Test: Financial Regulation
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25 Questions

1. During the boom years of the 1920s, bank failures were quite
2. The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.
3. The collapse of the Bank of Credit and Commerce International, BCCI, showed the difficulty of international banking regulation. BCCI operated in more than ________ countries and was supervised by the small country of ________.
4. An analysis of the political economy of the savings and loan crisis helps one to understand
5. The S&L Crisis can be analyzed as a principal-agent problem. The agents in this case, the________, did not have the same incentive to minimize cost to the economy as the principals, the________.
6. Moral hazard and adverse selection problems increased in prominence in the 1980s
7. A system of deposit insurance
8. A problem with the too-big-to-fail policy is that it ________ the incentives for ________ by big banks.
9. Agreements such as the ________ are attempts to standardize international banking regulations.
10. Because of asymmetric information, the failure of one bank can lead to runs on other banks. This is the
11. Deposit insurance has not worked well in countries with
12. Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a
13. To be considered well capitalized, a bankʹs leverage ratio must exceed ________.
14. Regulations designed to provide information to the marketplace so that investors can make informed decisions are called
15. The Basel Accord requires banks to hold as capital an amount that is at least ________ of their risk-weighted assets.
16. The ________ that required separation of commercial and investment banking was repealed in 1999
17. Regulatory forbearance
18. Regulations that reduced competition between banks included
19. The federal agencies that examine banks include
20. Who has regulatory responsibility when a bank operates branches in many countries?
21. ʺBureaucratic gamblingʺ refers to
22. The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers because
23. The contagion effect refers to the fact that
24. FDICIA ________ incentives for banks to hold capital and ________ incentives to take on excessive risk.
25. The subprime financial crisis showed the need for increased financial regulation, however, too much or poorly designed regulation could

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