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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. Depositors have a strong incentive to show up first to withdraw their funds during a bank crisis because banks operate on a
2. ʺBureaucratic gamblingʺ refers to
3. In the early stages of the 1980s banking crisis, financial institutions were especially harmed by
4. The chartering process is especially designed to deal with the ________ problem, and regular bank examinations help to reduce the ________ problem.
5. The major provisions of the Competitive Equality Banking Act of 1987 include
6. The result of the too-big-to-fail policy is that ________ banks will take on ________ risks, making bank failures more likely.
7. Investment banks that are part of ________ are regulated and supervised like banks.
8. Savings and loan regulators allowed S&Ls to include in their capital calculations a high value for intangible capital called
9. When regulators chose to allow insolvent S&Ls to continue to operate rather than to close them, they were pursuing a policy of ________.
10. The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.
11. With ________, firms value assets on their balance sheet at what they would sell for in the market.
12. The chartering process is similar to ________ potential borrowers and the restriction of risk assets by regulators is similar to ________ in private financial markets.
13. Who has regulatory responsibility when a bank operates branches in many countries?
14. Regulations that reduced competition between banks included
15. Off-balance-sheet activities
16. Acquiring information on a bankʹs activities in order to determine a bankʹs risk is difficult for depositors and is another argument for government ________.
17. The too-big-to-fail policy
18. To prevent bank runs and the consequent bank failures, the United States established the________ in 1934 to provide deposit insurance.
19. The Depository Institutions Deregulation and Monetary Control Act of 1980
20. Moral hazard and adverse selection problems increased in prominence in the 1980s
21. Regular bank examinations and restrictions on asset holdings help to indirectly reduce the________ problem because, given fewer opportunities to take on risk, risk-prone entrepreneurs will be discouraged from entering the banking industry.
22. In May 1991, the FDIC announced that it would sell the governmentʹs final 26% stake in Continental Illinois, ending government ownership of the bank that it had rescued in 1984. The FDIC took control of the bank, rather than liquidate it, because it believed that Continental Illinois
23. The Basel Accord, an international agreement, requires banks to hold capital based on
24. An important factor in producing the subprime mortgage crisis was
25. Banks will be examined at least once a year and given a CAMELS rating by examiners. The L stands for ________.

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