Question : 1) Moral hazard and adverse selection problems increased in prominence : 1373733

1) Moral hazard and adverse selection problems increased in prominence in the 1980s

A) as deregulation required savings and loans and mutual savings banks to be more cautious.

B) following a burst of financial innovation in the 1970s and early 1980s that produced new financial instruments and markets, thereby widening the scope for risk taking.

C) following a decrease in federal deposit insurance from $100,000 to $40,000.

D) as interest rates were sharply decreased to bring down inflation.

2) The Depository Institutions Deregulation and Monetary Control Act of 1980

A) separated investment banks and commercial banks.

B) restricted the use of ATS accounts.

C) imposed restrictive usury ceilings on large agricultural loans.

D) increased deposit insurance from $40,000 to $100,000.

3) One of the problems experienced by the savings and loan industry during the 1980s was

A) managers lack of expertise to manage risk in new lines of business.

B) heavy regulations in the new areas open to S&Ls.

C) slow growth in lending.

D) close monitoring by the FSLIC.

4) 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.

5) When regulators chose to allow insolvent S&Ls to continue to operate rather than to close them, they were pursuing a policy of ________.

A) regulatory forbearance

B) regulatory kindness

C) ostrich reasoning

D) ignorance reasoning

6) Savings and loan regulators allowed S&Ls to include in their capital calculations a high value for intangible capital called

A) goodwill.

B) salvation.

C) kindness.

D) retribution.

7) Reasons regulators chose to follow regulatory forbearance rather than to close the insolvent S&Ls include all of the following except

A) they had insufficient funds to close all of the insolvent S&Ls.

B) they were friends with the S&L owners.

C) they hoped the problem would go away.

D) they did not have the authority to close the insolvent S&Ls.

8) The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.

A) regulatory forbearance; moral hazard

B) regulatory forbearance; adverse hazard

C) regulatory agnosticism; moral hazard

D) regulatory agnosticism; adverse hazard

9) Regulatory forbearance

A) meant delaying the closing of “zombie S&Ls” as their losses mounted during the 1980s.

B) had the advantage of benefiting healthy S&Ls at the expense of “zombie S&Ls”, as insolvent institutions lost deposits to health institutions.

C) had the advantage of permitting many insolvent S&Ls the opportunity to return to profitability, saving the FSLIC billions of dollars.

D) increased adverse selection dramatically.

10) The major provisions of the Competitive Equality Banking Act of 1987 include

A) expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system.

B) the establishment of the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.

C) directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance.

D) prompt corrective action when a bank gets in trouble.