Financial Markets and Institutions (2-downloads)

5. What are the costs and benefits of a too-big-to-

fail policy?

6. What special problem do off-balance-sheet activities

present to bank regulators, and what have they done

about it?

7. Why does imposing bank capital requirements on

banks help limit risk taking?

8. What forms does bank supervision take, and how does

it help promote a safe and sound banking system?

9. What steps were taken in the FDICIA legislation of 1991

to improve the functioning of federal deposit insurance?

10. Why has the trend in bank supervision moved away

from a focus on capital requirements to a focus on risk

management?

11. How do disclosure requirements help limit excessive

risk taking by banks?

---

452

Part 6 The Financial Institutions Industry

Q U A N T I TAT I V E   P R O B L E M S

1. Consider a failing bank. A deposit of $150,000 is worth

how much if the FDIC uses the payoff method? The

purchase-and-assumption method? Which is more

costly to taxpayers?

2. Consider a bank with the following balance sheet:

deposits are received. The bank issues a $25 million

commercial loan and another $50 million in mort-

gages, with the following terms:

●

Mortgages: 200 standard 30-year, fixed-rate with

a nominal annual rate of 5.25% each for $250,000.

●

Commercial loan: Three-year loan, simple inter-

est paid monthly at 0.75% per month.

If required reserves are 8%, what does the bank bal-

ance sheet look like? Ignore any loan loss reserves.

How well-capitalized is the bank?