Money and Banking(Exam 2) - In Class Notes Flashcards

5421741174	Moral Hazard	after loan is made, borrower may and has incentive to, engage in actions that increase default risk	0
5421741957	principal-agent problem	manager may not have incentive to maximize profits	1
5421742613	agent	an example would be a CEO	2
5421742614	principal	an example would be a stockholder	3
5421746401	audit, regulation, intermediation, market for corporate contro, loss of capital, covenants	please name some ways to address moral hazard	4
5421746986	Ponzi Scheme	an agent lures funds from principals by promising insane gains but can only work if more people join	5
5421748432	financial innovation	intermediaries have shown the ability to respond to new regulatory and market dynamics	6
5421749971	adjustable rate mortgage	interest rate adjusts with market standard	7
5421750556	regulation Q	stimulated the introduction of NOW and MM bank accounts	8
5421752617	Germany	this country has low rates of credit use and is generally credit averse	9
5421753722	liquiditiy management	a bank seeks to maximize net income under the constragnt of maintaining sufficient ______	10
5421755065	debt managment	profit margin will be affected by the bank's exposure to interest rate risk in assets and liabilities	11
5421756055	capital management	a bank seeks to maximize the risk of insolvency	12
5421757638	diversift across markets maximize liquidity through securitization screen borrowers to address adverse selection enforce loan contracts to avoid moral hazard	asset/risk management techniques	13
5421760757	avoiding insolvency keeping a strong capital adequacy ratio	what's important in capital management	14
5421761803	Tier 1 capital	includes preferred stock and non controlling interest	15
5421762237	Total capital	includes tier 1 and tier 2 capital	16
5421762661	Tier 2 capital	subordinated debt and secondary funds	17
5421763946	net income/equity	ROE equation	18
5421763947	net income/assets	ROA equation	19
5421765300	the lower the shareholders ROE will be	if a bank has a higher capital ratio	20
5421766453	10%	checking and savings deposits are subject to this requirement percentage	21
5421768125	borrowing from the Fed	this is a last ditch option to gain additional funds	22
5421769363	an interest rate increase will reduce net income	if a bank has more exposure to rate sensitive liabilities than rate sensitive assets	23
5421771802	!	know how to conduct gap analysis	24
5421773004	Macaulay's duration	a measurement of risk sensitivity	25
5421774819	shells	example of wampum	26
5421775387	gold and silver coins; spanish eight-real silver coins	an example of specie	27
5421775388	tobacco, hide, corn	examples of country pay	28
5421776842	bills of credit issued by banks as mortgage loans bills of credit issued by treasuries against future reciepts	two forms of colonial paper notes	29
5421780131	war expenses	why were bills of credit originally issued	30
5421781066	Coinage act of 1792	adopted the dollar as a unit of account	31
5421782959	distance from the bank of issue reputation of the bank whether bank is specie-paying	notes being accepted at discount or face value were dependent on these factors	32
5421784413	first bank in 1792	Hamilton made this with a 20-year charter	33
5421785636	could lend to treasury could lend to state-chartered banks could buy-up notes	functions of the first bank	34
5421786548	1811 under Jefferson	the first bank charter lapsed in this year because of this guy	35
5421788571	insurance	this grew sharply as the number of banks increased from 88 to 250	36
5421790619	war of 1812	this prompted a new bank in 1816	37
5421792634	lender of last resort of banks by maintaining large specie reserves presented state notes to the banks for redemption in specie	two goals of the second bank(Nicholas Biddle)	38
5421797615	Andrew jackson vetoed a bill to renew the banks charter	what caused the end of the second bank	39
5421799437	laws in many states were very lax anyone could apply for charter wildcat banking	the free banking era	40
5421821912	Forstall System(1842)	banks were required to keep specie equal to 1/3 of notes and deposits old charters could be renewed but new charters were seldom given	41
5421825178	financing was done with interest bearing US treasury bonds which circulated much like currency "greenbacks" were introduced	paying for the civil war included what	42
5421827593	National bank act of 1863	occurred because of a need for treasury bond market	43
5421831103	controller of the curency	enforced the national bank act of 1863	44
5421831956	duel banking	less reliant on notes and preferring relatively lax state banking laws, state banks saw little advantage in converting to national status this happened because of this	45
5421834877	Glass-Steagall	did not allow banks to participate in other financial services such as securities underwriting	46
5421836143	Financial services modernization act(1999)	permitted the merger of banks	47
5421837278	Dodd-Frank	legislation was passed after housing crisis banks were designated as SIFI which are subject to stricter capital and liquidity requirements FSOC oversees this	48
5421840446	Volker rule	banks could not hold a lot of equity in hedge funds or private equity	49
5421843023	issue reserve notes lend reserves to banks enforce regulation trade in currency(foreign) manage money supply	name some roles that the Fed has	50
5421862581	treasury securities discount loans gold, currency, etc float	assets on the feds balance sheet	51
5421863404	federal reserve notes bank's reserve accounts treasury accounts capital	liabilities on the feds balance sheet	52
5421865949	m= c+1/r+e+c	money multiplier function	53
5421870614	monetary supply goes up	if non borrowed monetary base goes up	54
5421871649	monetary supply goes down	if RR goes up	55
5421872257	monetary supply goes up	if borrowed reserves goes up	56
5421872950	monetary supply goes down	if excess reserves go up	57
5421873624	monetary supply goes down	if currency holdings go up	58
5421877539	an increase in the excess reserve ratio	in 2008, the monetary base raised so much because of	59
5425998869	McFadden act of 1972	prohibits banks from chartering across state border	60
5426054760	superregional bank	bank that is not located in a money center city but is similar in size	61
5426062024	economics of scope	ability to use one resource to provide different products and services	62
5426088559	Riegle Neal Act	repealed prohibition of interstate banking	63
5426097738	Gramm Leach Bailey Act of 1999	opened banks to consolidation within banking and also across other financial institutions	64
5426109666	Gramm Leach Bailey	repealed Glass Steagal	65
5426132835	Federal home loan banking system	is responsible for savings and loan associations	66
5426137316	mutual savings banks	this is an example of a thrift institution	67