44 notecards = 11 pages (4 cards per page)
A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a
A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system
A serious consequence of a financial crisis is
________ are asymmetric information problems that act as a barrier to efficient allocation of capital.
Financial crises in advanced economies might start from a
When financial institutions go on a lending spree and expand their lending at a rapid pace they are participating in a
When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called
When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in
When asset prices rise above their fundamental economic values, a(n) ________ occurs.
Most U.S. financial crises have started during periods of ________ either after the start of a recession, a stock market crash, or the failure of a major financial institution.
If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks, the country experiences a(n)
In a bank panic, the source of contagion is the
Debt deflation occurs when
A substantial decrease in the aggregate price level that reduces firms' net worth may stall a recovery from a recession. This process is called
A possible sequence for the three stages of a financial crisis might be ________ leads to ________ leads to ________.
The economy recovers quickly from most recessions, but the increase in adverse selection and moral hazard problems in the credit markets caused by ________ led to the severe economic contraction known as The Great Depression.
The ________, the difference between the interest rate on Baa corporate bonds and U.S. Treasury bonds. rose sharply during the Great Depression.
Typically, the economy recovers fairly quickly from a recession. Why did this NOT happen in the United States during the Great Depression?
Answer: The 25% decline in the price level from 1930-1933 triggered a debt deflation. The loss of net worth increased adverse selection and moral hazard problems in the credit markets and increased and prolonged the economic contraction.
________ is a process of bundling together smaller loans (like mortgages) into standard debt securities.
A ________ pays out cash flows from a collection of assets in different tranches, with the highest-rated tranch paying out first, while lower ones paid out less if there are losses on the underlying assets.
The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.
If mortgage brokers do not make a strong effort to evaluate whether the borrower can pay off a loan, this creates a
Agency problems in the subprime mortgage market included all of the following EXCEPT
The growth of the subprime mortgage market led to
When housing prices began to decline after their peak in 2006, many subprime borrowers found that their mortgages were "underwater." This meant that
If a borrower takes out a $200 million loan in a repo agreement and is asked to post $220 million of mortgage-backed securities as collateral, the "haircut" is
As "haircuts" increased during 2007-2009, financial institutions found that to borrow the same loan amount now required ________ collateral.
Although the subprime mortgage market problem began in the United States, the first indication of the seriousness of the crisis began in
Which investment bank filed for bankruptcy on September 15, 2008 making it the largest bankruptcy filing in U.S. history?
The global financial crisis of 2007-2009 not only led to a worldwide recession, but also a ________ in the European nations that use the euro currency.
The government passed the Economic Recovery Act in October 2008 to prevent the financial crisis from continuing to worsen. A controversial component of this act was the
Microprudential supervision focuses on the safety and soundness of
Microprudential supervision does all of the following EXCEPT
Macroprudential supervision policies try to prevent a leverage cycle by changing capital requirements so that they ________ during an expansion and ________ during a downturn.
In order to ensure that borrowers have an ability to repay residential mortgages, the new consumer protection legislation requires lenders to do all of the following EXCEPT
The new Consumer Financial Protection Bureau is an independent agency but is funded and housed within
The Dodd-Frank legislation of 2010 permanently increased the federal deposit insurance to
Firms that are designated as systemically important financial institutions (SIFIs) are subject to all of the following additional Federal Reserve regulations EXCEPT
The Volcker Rule addresses the off-balance-sheet problem involving
The Dodd-Frank bill created an agency to monitor markets for asset price bubbles and the buildup of systemic risk. This agency is called the
One suggested method of dealing with the too-big-to-fail problem is to reimpose the restrictions that were in place under
One suggested method of reducing excessive risk-taking by SIFIs is to require them to hold ________ capital when credit is expanding rapidly and ________ capital when credit is contracting.
Dodd-Frank addressed many of the issues that led to the financial crisis. Which of the following was NOT addressed by Dodd-Frank regulations?
The global financial crisis showed the need for increased financial regulation, however, too much or poorly designed regulation could