Question 1

19-49 The introduction of prompt corrective action capital zones by FDICIA was an attempt to place greater decision-making power at the discretion of regulators rather than on objective,measurable rules.

Accepted Answer

The introduction of prompt corrective action capital zones by FDICIA aimed to establish objective, measurable rules to guide regulators, reducing their discretion in decision-making.

Question 2

19-48 FDICIA imposed additional regulatory discipline as a substitute for increased stockholder and depositor discipline.

Accepted Answer

The answer of 19-48 FDICIA imposed additional regulatory discipline as...

Question 3

19-53 State guaranty funds for insurance companies are sponsored by state insurance regulators rather than by a federal agency such as the FDIC.

Accepted Answer

State guaranty funds for insurance companies are indeed sponsored by state insurance regulators and not by a federal agency like the FDIC. Each state has its own guaranty fund that is designed to protect policyholders in the event that an insurance company becomes insolvent.

Question 4

19-44 The FIRREA prohibited all insured financial institutions from accepting brokered deposits or paying interest rates that are significantly higher than existing market rates.

Accepted Answer

The FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act of 1989) did not prohibit all insured financial institutions from accepting brokered deposits or paying higher interest rates; it imposed restrictions and conditions on such practices to ensure financial stability.

Question 5

19-47 The insured depositor transfer method of least-cost bank failure resolution requires the FDIC to employ the method that imposes the highest amount of failure costs on uninsured depositors.

Accepted Answer

The answer of 19-47 The insured depositor transfer method of...

Question 6

19-52 By decreasing the use of the discount window as a source of funding for a DI,the Federal Reserve hopes to reduce volatility in the fed funds market.

Accepted Answer

The answer of 19-52 By decreasing the use of the...

Question 7

19-42 The employment of deposit brokers allows individual depositors to receive deposit insurance coverage on total asset balances well in excess of $250,000 at any given bank.

Accepted Answer

The answer of 19-42 The employment of deposit brokers allows...

Question 8

19-50 The discount window at the Federal Reserve is a suitable substitute for deposit insurance and a possible method of preventing bank runs.

Accepted Answer

The discount window provides short-term loans to banks to maintain liquidity, but it does not replace deposit insurance, which protects depositors' funds and prevents bank runs by ensuring that deposits are safe even if a bank fails.

Question 9

19-46 The 1993 Depositor Protection legislation gives equal claim to the value of liquidated assets less the amount of insured deposits to foreign uninsured depositors,domestic uninsured depositors,and the FDIC.

Accepted Answer

The 1993 Depositor Protection legislation does not give equal claim to foreign uninsured depositors, domestic uninsured depositors, and the FDIC. The FDIC typically has priority in claims over uninsured depositors.

Question 10

19-54 The required contribution from surviving insurers to protect policyholders of failed insurance companies usually is on a pro rata amount based on the relative asset size of the surviving company.

Accepted Answer

The answer of 19-54 The required contribution from surviving insurers...

Question 11

19-58 The Pension Benefit Guaranty Corporation (PBGC)insures pension benefits against the under-funding of pension plans by corporations.

Accepted Answer

The Pension Benefit Guaranty Corporation (PBGC) does indeed insure pension benefits against the under-funding of pension plans by corporations.

Question 12

19-55 The FDIC deposit insurance program is also available to credit unions.

Accepted Answer

The FDIC (Federal Deposit Insurance Corporation) insures deposits at banks, while credit unions are insured by the NCUA (National Credit Union Administration).

Question 13

19-51 Interest rates charged to healthy banks that use the Federal Reserve discount window are typically set one percent below the fed funds target interest rate.

Accepted Answer

The interest rates charged to healthy banks using the Federal Reserve discount window are typically set above the federal funds target rate, not below.

Question 14

19-41 Insured depositors can be covered for more than $250,000 at any given FI under current FDIC regulations.

Accepted Answer

Insured depositors are currently covered for up to $250,000 per depositor, per insured bank. However, if a depositor has accounts at multiple banks that are part of the same FDIC-insured institution (such as a bank and its online division), the $250,000 limit may apply to each account separately, allowing for coverage of more than $250,000. Additionally, certain types of accounts, such as IRA accounts, may also have higher coverage limits.

Question 15

19-43 During the 1980s,a high proportion of brokered deposits at a DI became an early warning signal of its risk for failure.

Accepted Answer

This statement is true. During the 1980s in the US, brokered deposits became a popular source of funding for troubled banks, and the FDIC found that banks with a high proportion of brokered deposits were more likely to fail. This led to regulatory changes and limits on brokered deposits as a way to manage bank risk.

Question 16

19-57 The deposit insurance programs of the National Credit Union Administration (NCUA)is modeled after the programs offered by the FDIC.

Accepted Answer

The deposit insurance programs of the NCUA are indeed modeled after the programs offered by the FDIC. Both organizations insure deposits at financial institutions to protect depositors in the event of bank failures or other financial crises.

Question 17

19-56 The National Credit Union Administration (NCUA)is an independent federal agency that insures credit union deposits.

Accepted Answer

The National Credit Union Administration (NCUA) is indeed an independent federal agency that insures credit union deposits.

Question 18

19-59 The deficit realized by the PBGC in 1992 was a result of risk-taking by fund administrators.

Accepted Answer

The PBGC's deficit in 1992 was largely a result of risk-taking by pension plan administrators, who invested funds in risky assets and failed to adequately fund the plans.

Question 19

19-60 Which of the following is NOT a social welfare effect of bank runs?

Accepted Answer

Discipline of incompetent managers is not a social welfare effect of bank runs. The other options, negatively affecting the payments function of DIs, reduced availability of credit, potential decrease in the money supply, and inability to perform intergenerational wealth transfers are all social welfare effects of bank runs.

Question 20

19-45 The "too big to fail" policy doctrine prevalent through the 1980s and most of the 1990s is remised on the separation of small depositors who would receive deposit insurance and large depositors who would not receive the benefits of deposit insurance.

Accepted Answer

The "too big to fail" policy doctrine prevalent through the 1980s and most of the 1990s is based on the idea that some banks are so large and interconnected that their failure would have disastrous consequences for the wider economy. It did not involve the separation of small and large depositors regarding deposit insurance.

Quiz 19: Deposit Insurance and Other Liability Guarantees