Chapter 4

Chapter 4

 
1. Bank Regulation

2. Bank Balance Sheet and Bank Capital

3. Bank Regulation: How It’s Done

4. Consumer Protection and Failures

 Chapter 4

1. The Glass-Steagall Act of 1993 separated commercial banks, investment banks, and
insurance companies. Explain how the act was slowly chipped away at before it was
finally phased out in 1999.

2. Ted argues that we should return to the old ways when banks were forbidden from
branching across state lines. Ted believes this will make banks safer because they
will concentrate on one, narrowly defined market. Evaluate Ted’s argument.

3. What did the Riegel – Neil Act of 1994 allow US banks to do?
a. For the first time offer deposits with FDIC insurance
b. Offer checking accounts that paid interest
c. Have branches in many different states
d. Sell newly issued government securities.
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 Why is it that bank executives today may not want their banks to hold sufficient
levels of bank capital, even if doing so would make their banks more stable?

 Explain how depository institutions successfully “got around” Regulation Q

without actually breaking the law.

 The Basel Accords attempted to address which of the following issues?

a. Sufficient level of bank capital
b. Different levels of deposit insurance in different countries
c. The lack of an international lender of last resort
d. Illegal cash transfer between nations.
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 Robert is confused about why regulators created the too big to fail policies.
What would you tell Robert?

 Explain how regulators use the CAMELS rating in the regulation process.

 In a “pay off and liquidate” approach, what is being liquidated?

a. the cash a bank holds
b. the insolvent institution that is being closed
c. all of the depositors’ accounts at the institution in question
d. the healthy bank that is purchasing the failing institution
 Banks and Mone

4
 The Community Reinvestment Act was created in response to the issue of
redlining. What is/was redlining and how did the act attempt to address it?

 Explain the controversies that exist over the Bureau of Consumer Financial
Protection. How can some critics claim it has too much power, whereas other
claim it has no meaningful use at all?

 Scott suffers from what Simon Johnson calls intellectual capture. What does
that mean?
a. Scott believes that only highly educated people should manage financial institutions.
b. Anything that is beneficial to the financial sector Scott sees as benefiting society as a whole.
c. Scott considers the compensation paid to financial institution executives as being excessive
because these executives are not the most highly educated members of society.
d. In Scott’s view bank regulators are the most highly trained professionals in financial markets.