ECON 0280 Problem Set 8

ECON 0280 Problem Set 8 - 4. Explain why deposit insurance...

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ECON 0280: Introduction to Money and Banking Problem Set 8—Ball Chapters 9 and 10 1. Ball, Problem Set p. 280, Question 1 2. What are the three methods a bank can use to deal with insufficient reserves (i.e. liquidity management). Using T-accounts, explain how each method affects the bank’s balance sheet. What are the costs associated with each method? 3. Explain the factors that bank examiners investigate under the CAMELS rating system
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Unformatted text preview: 4. Explain why deposit insurance exacerbates the moral hazard problem in banking. 5. What type of bank regulations are designed to reduce moral hazard problems created by deposit insurance? Will they completely eliminate the moral hazard problem? 6. Explain how the contagion effect (where one bank failure hastens the failure of another bank) happens. What is the role of FDIC insurance in preventing bank runs? 1...
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This note was uploaded on 07/02/2009 for the course ECON 0280 taught by Professor Jamesmaloy during the Summer '09 term at Pittsburgh.

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