Study Guide for Money and Banking, Chapter 11

DEFINITIONS

financial disintermediation
Universal Banking
ATS account
NOW account
dual banking system
McFadden Act
Glass-Steagal Act
Regulation Q
loophole mining
bank holding company
FDIC
regional compacts
Riegle-Neal Act of 1994
money market mutual fund
junk bond
commercial paper
Eurodollar deposit
securitization
CMO
pass-through security

ESSAYS

1. Explain how the banking industry in the U.S. differs from banking in Canada and Europe.
2. Explain how banks can minimize the maturity/duration mismatch between their assets and liabilities.
3. Explain how universal banking can reduce the principal-agent problem that exists between corporate managers and shareholders. (universal banking allows commercial banks to own common stock)
4. Explain how commercial paper, money market mutual funds, junk bonds and mortgage securities were forms of financial disintermediation.
5. How did Regulation Q contribute to financial disintermediation?
6. How did financial disintermediation contribute to bank failures of the 1980s?
7. Describe three ways that banks found to get around Regulation Q.
8. Explain how the high interest rates of the early 1980s and a downward sloping yield curve contributed to bank failures.
9. Explain how high interest rates negatively affect an S&L's 1) balance sheet and 2) income statement.
10. When Franklin Roosevelt became president in 1931, he and his comptroller of the currency supported interstate branching as an alternative to federal deposit insurance. Explain this position.
11. What are the political barriers that prevent the establishment of universal banking in the U.S.?
12. Explain the "historic phobia toward large banks" in the United States.
13. Explain the concept of loophole mining and give several examples.
14. Explain the decline of traditional banking.