31) The FDIC must take steps to close down banks whose equity capital is less than ________ of assets.
A) 4%
B) 3%
C) 2%
D) 1%
32) Off-balance-sheet activities
A) generate fee income with no increase in risk.
B) increase bank risk but do not increase income.
C) generate fee income but increase a bank's risk.
D) generate fee income and reduce risk.
33) The Basel Accord, an international agreement, requires banks to hold capital based on
A) risk-weighted assets.
B) the total value of assets.
C) liabilities.
D) deposits.
34) The Basel Accord requires banks to hold as capital an amount that is at least ________ of their risk-weighted assets.
A) 10%
B) 8%
C) 5%
D) 3%
35) Under the Basel Accord, assets and off-
A) 2; adverse selection
B) 2; credit risk
C) 4; adverse selection
D) 4; credit risk
36) The practice of keeping high-risk assets on a bank's books while removing low-risk assets with the same capital requirement is known as
A) competition in laxity.
B) depositor supervision.
C) regulatory arbitrage.
D) a dual banking system.
37) Banks engage in regulatory arbitrage by
A) keeping high-risk assets on their books while removing low-risk assets with the same capital requirement.
B) keeping low-risk assets on their books while removing high-risk assets with the same capital requirement.
C) hiding risky assets from regulators.
D) buying risky assets from arbitragers.
38) Because banks engage in regulatory arbitrage, the Basel Accord on risk-based capital requirements may result in
A) reduced risk taking by banks.
B) reduced supervision of banks by regulators.
C) increased fraudulent behavior by banks.
D) increased risk taking by banks.
39) One of the criticisms of Basel 2 is that it is procyclical. That means that
A) banks may be required to hold more capital during times when capital is short.
B) banks may become professional at a cyclical response to economic conditions.
C) banks may be required to hold less capital during times when capital is short.
D) banks will not be required to hold capital during an expansion.
40) Overseeing who operates banks and how they are operated is called
A) prudential supervision.
B) hazard insurance.
C) regulatory interference.
D) loan loss reserves.
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