Question : 11) The S&L Crisis can be analyzed as a principal-agent : 1373734

 

11) 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 ________.

A) politicians/regulators; taxpayers

B) taxpayers; politician/regulators

C) taxpayers; bank managers

D) bank managers; politicians/regulators

 

12) “Bureaucratic gambling” refers to

A) the strategy of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of thrift regulators.

B) the risk that thrift regulators took in publicizing the plight of the S&L industry in the early 1980s.

C) the strategy adopted by thrift regulators of lowering capital requirements and pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L industry would improve.

D) the risk that regulators took in going to Congress to ask for additional funds.

 

13) 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.

14) The bailout of the savings and loan industry was much delayed and, therefore, much more costly to taxpayers because

A) of regulators’ initial attempts to downplay the seriousness of problems within the thrift industry.

B) politicians listened to the taxpayers rather than the S&L lobbyists.

C) Congress did not wait long enough for many of the problems in the thrift industry to correct themselves.

D) regulators could not be fired, therefore, they didn’t care if they did a good job or not.

 

15) An analysis of the political economy of the savings and loan crisis helps one to understand

A) why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging closing of insolvent thrifts.

B) why thrift regulators were so quick to inform Congress of the problems that existed in the thrift industry.

C) why thrift regulators willingly acceded to pressures placed upon them by members of Congress.

D) why politicians listened so closely to the taxpayers they represented.

 

16) Taxpayers were served poorly by thrift regulators in the 1980s. This poor performance cannot be explained by

A) regulators’ desire to escape blame for poor performance, leading to a perverse strategy of “bureaucratic gambling.”

B) regulators’ incentives to accede to pressures imposed by politicians, who sought to keep regulators from imposing tough regulations on institutions that were major campaign contributors.

C) Congress’s dogged determination to protect taxpayers from the unsound banking practices of managers at many of the nations savings and loans.

D) politicians strong incentives to act in their own interests rather than the interests of the taxpayers.

 

17) The Federal Home Loan Bank Board and the FSLIC, both of which failed in their regulatory tasks, were abolished by the

A) Competitive Equality Banking Act of 1987.

B) Financial Institutions Reform, Recovery and Enforcement Act of 1989.

C) Office of Thrift Supervision.

D) Office of the Comptroller of the Currency.

18) The Resolution Trust Corporation was created by the FIRREA in order to

A) manage and resolve insolvent S&Ls.

B) build up trust in government regulation.

C) regulate the S&L industry.

D) purchase large amounts of government debt.

 

19) FIRREA increased the core-capital leverage requirement for thrift institutions from 3% to

A) 8%.

B) 5%

C) 10%

D) 25%

 

20) The Federal Deposit Insurance Corporation Improvement Act of 1991

A) increased the FDIC’s ability to borrow from the Treasury to deal with failed banks.

B) increased the FDIC’s ability to use the too-big-to-fail doctrine.

C) eliminated governmentally-administered deposit insurance.

D) eliminated restrictions on nationwide banking.

 

 

21) 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) President of the United States

D) Governor of the state in which the failed bank is located

 

22) The directive of prompt corrective action means that

A) the FDIC will intervene earlier and more vigorously when a bank gets into trouble.

B) the banks must take actions quickly to resolve reserve disputes.

C) bank failures cannot occur.

D) there must be an immediate response to an increase in interest rates.

 

23) FDICIA ________ incentives for banks to hold capital and ________ incentives to take on excessive risk.

A) increased; decreased

B) increased; increased

C) decreased; decreased

D) decreased; increased