Note Cards for 465

Note Cards for 465 - Why did the Fed. Fail? Ideological...

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Why did the Fed. Fail?
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Ideological – belief in the Markets Excessive confidence in capital requirements Loose monetary policy in 1 st half of decade Focus on bank solvency Ignoring the warning signals Financial stability mission not embedded organizationally o No dedicated stability division o No periodic financial stability report
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The Responses to the crisis o (Berger’s Take)
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Bank leverage/ capital adequacy Regulations of systematic risk Failure resolution procedures Prudential supervision Exchange clearing derivatives Rating agency reform Restructuring of regulatory authority Consumer protection
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Actual response to the Federal Crisis
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Federal Reserve Action Troubled Asset Relief Program (TARP) Stress Test Dodd-Frank financial reform bill Basel III Capital Reform Bill
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Federal Reserve Policy during the recent Crisis
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Federal fund rate target reduced Injected liquidity into the global financial system Sold inventories of treasuries & replaced them with MBS Allowed instructions to borrow first to purchase asset-backed commercial paper Extended loans to the investment banks & money market funds Purchased mortgages, MBS, & consumer debt
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TARP
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$ 700 Billion originally designed to buy distressed MBS Investment in 685 banks, bailed out AIG, auto companies Officially ended Oct. 2010
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What 4 Banks received $25 billion for TARP ?
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Citigroup BOA JP Morgan Chase Wells Fargo
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Which banks received multiple TARP funds?
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BOA & Citigroup
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Which group paid back the TARP funds in 2009
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JP morgan Chase Goldman Sach’s BOA
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How much is still owed in TARP
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More than 600 banks still owe 65 billion
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Bank Stress tests (supervisory Capital Assetment Program) SCAP
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Conducted by federal bank regulating agencies o (FED, FDIC, OCC) designed to ensure that large banking organizations had enough capital to withstand the recession Tier 1 capital has to be greater than 6% Tier 1 common capital has to be greater than 4%
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How many banks needed more capital as shown by the stress test ?
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10 Banks need more capital out of 19
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Financial Stability Oversight Council (FSOC)
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10 financial regulators, an independent member & 5 non-voting members Chaired by treasury secretary
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Responsibilities of FSOC
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Recommends tougher capital, liquidity & risk management when banks get too big Monitor risk in the financial system Can require systemically important FI’s be Federally regulated by 2/3’s vote Can approve by 2/3 vote Fed’s breakup of complex FI’s that impose “grave” systemic threat
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Consumer Financial Protection Bureau
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Led by ind. Director appointed by President & confirmed by Senate Exam Authority over o o Mortgages brokers o Payday lenders & more
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Dodd- Frank