EC223 Lecture Notes - Lecture 18: Arbitrage, Capital Requirement, Unintended Consequences
Document Summary
Financial innovations that emerged after 2000 in the mortgage markets included all of the following except: collateralized debt obligations, subprime mortgages, mortgage-backed securities, adjustable-rate mortgages. The leverage ratio is the ratio of a bank"s: assets divided by liabilities, capital divided by its total liabilities. Income divided by its assets: capital divided by its total assets. The result of the too-big-to-fail policy is that __ banks will take on __ risks, making bank failures more likely: big; greater, small; fewer, big; fewer, small; greater. The bank accord, an international agreement, requires banks to hold capital based on: total value of assets, deposits, liabilities, risk-weighted assets. The chartering process is especially designed to deal with the ___ problem, and regular bank examinations help to reduce the ___ problem: moral hazard; moral hazard, moral hazard; adverse selection, adverse selection; adverse selection, adverse selection; moral hazard.
