Exercise 17 Answers

Exercise 17 Answers - ECON 423- Exercise 17 What are Shadow...

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ECON 423- Exercise 17 What are Shadow Banks? A. What are some causes of Financial Crisis? (i) Insolvency (ii) Liquidity problems (iii) Panics (iv) Contagion (v) Bank Runs (vi) Risk taking and Moral Hazard Some recent major failures: Bear Stearns, Washington Mutual Savings Bank B. What are two common Government Safety Net programs? 1. Lender of last resort – Bailouts 2. Deposit Insurance What are some problems with “Too Big to Fail” policies? Encourages Risk Taking and Moral Hazard Behavior C. Regulation of the Financial System National Banks: OCC, Fed, FDIC State Member Banks: State Banking Authorities, Fed, FDIC State Non-Member Banks: State Banking Authorities Credit Unions: National Credit Union Administration, State Authorities What is REGULATOR SHOPPING BEHAVIOR? *AIG bought a small savings banks so that supervision is minimal. 1. Restrictions on Competition – Competition results in banks operating on a small profit margin.
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Exercise 17 Answers - ECON 423- Exercise 17 What are Shadow...

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